U.K. Brexit negotiations have captured the attention of global FX markets, sidelining Canadian dollar moves in the process. Brexit began with a referendum June 20, 2016. Article 50, the official process to leave the European Union was triggered on March 29, 2017. Negotiations have been ongoing since then. Those negotiations came to an end late yesterday when a draft agreement was announced. GBP/USD soared on the news and then sank when it became apparent that getting the deal through the U.K. parliament would be a significant hurdle. FX traders were focused on the numerous headlines and press reports which limited interest in the other major G-10 currencies including the Canadian dollar.
However, despite the sterling focus, there were enough major economic data releases, the usual U.S. political theatre and oil price action to keep FX traders on their toes. In Asia, the Canadian dollar rose alongside the Australian dollar after Australia Consumer Confidence was better than expected. (Actual 2.8% vs previous 1.0%). However, the gains were very short-lived due to steady U.S. dollar demand. The strength of the U.S. economy was underscored when Japan released poor growth numbers.
The China/U.S. trade war may not be on the front pages, but the ongoing feud is undermining FX market risk sentiment. China Retail Sales data was weaker than expected but better than forecast Industrial Production data offset the disappointment. China President Xi Jinping and U.S. President Trump are scheduled to meet during the G-20 meeting in Argentina at the end of the month. Those talks are expected to lead to a thaw in the trade war. Reports that U.S. Treasury Secretary Mnuchin and China Vice Premier Liu Hie have resumed discussion helped sentiment. The American’s are insisting that China make a substantial offer while China wants more talks before making any proposals. The China/U.S. trade spat has undermined the Canadian dollar on fears that slowing global growth would lead to lower demand for commodities.
The Canadian dollar is under pressure from broad U.S. dollar demand because of euro-zone issues. The European Commission told Italy to revise its spending plans for 2019 and gave Tuesday, November 13 as the deadline for submitting a new budget. Italy declined. The Commission is faced with the dilemma of how to penalize Italy to prevent other countries from disobeying E.U. rules, while not negatively impact Italy’s finances. This uncertainty has driven EUR/USD lower, and the Canadian dollar was collateral damage.
The U.S. dollar is being supported by expectations for a strong inflation report this morning. U.S. October Consumer Price Index is expected to be 2.5% y/y (September 2.3%). Rising inflation will keep the focus on U.S. rate increases which underpin the greenback. There isn’t any Canadian data of note today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
