The Canadian dollar is close enough to the edge of the cliff, to stare into the abyss. A series of domestic and international factors have combined to drive the Canadian dollar down and put the January low in play.
Overnight, China released new 2019 economic forecasts. They downgraded Gross Domestic Product growth from 6.6% in 2018 to a range of 6.0% to 6.5%, which if it occurs, will be the slowest growth in 30 years. China’s inflation target stayed "around 3%." Beijing also announced tax cuts of $298 billion U.S. in an attempt to stimulate growth. Chinese stock markets liked what they heard. The Shanghai Shenzhen 300 index rose 0.58% and has now risen 26.75%, year to date.
The China news put a chill in the air in Asia. AUD/USD came under selling pressure which was exacerbated by a weaker than expected Caixin China Services PMI reading. The Reserve Bank of Australia didn’t help. The RBA left rates unchanged as was universally expected. Concerns that interest rates are vulnerable to a cut tainted their relatively positive outlook for the domestic economy. The downward pressure on the currency contributed to the softer Canadian dollar profile.
The U.S. dollar opened in Toronto with small gains against the G-10 majors. President Trump said he planned to end India’s special trade status. He is upset that India doesn’t provide America with "equitable and reasonable" access to their markets. He also aimed at Turkey, saying the country no longer meets the requirements for the Generalized System of Preferences (GSP) program. His comments contributed to the drift into risk aversion trades, undermining the Canadian dollar in the process.
European traders took their cues from Asia and bought U.S. dollars ahead of Thursday's European Central Bank monetary policy meeting. Traders expect ECB President Mario Draghi to reaffirm is dovish outlook.
In the UK, GBP/USD traders are busy unwinding bullish trades established near the end of February when they downgraded the risk of a “no-deal” Brexit. Nothing has changed. The U.K. and E.U. are continuing to discuss ways of amending Theresa May’s Brexit plan so that it is palatable to a majority of MP’s.
Global equity indices have retreated somewhat which has exacerbated the poor risk sentiment permeating FX markets today. US equity futures are pointing to a flat open on Wall Street.
The US dollar could get another boost this morning if Institute for Supply Management Non-manufacturing and New Home Sales data is better than expected. The Canadian economic data calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
