The Canadian dollar continues to hover just above the bottom of its two-month range, and there is no relief in sight. The U.S. and China kick off round 10 of their trade negotiations, and this round appears to have gotten off to an acrimonious start. And U.S. President Trump is in the thick of things.
Trump blasted China yesterday when he was attending a political rally in Florida. He said to reporters: "By the way, you see the tariffs we’re doing? Because they broke the deal. They broke the deal... So they’re flying in, the vice premier tomorrow is flying in — good man — but they broke the deal. They can’t do that, so they’ll be paying."
His comments added more fuel to the fire as he justified raising tariffs on $200 billion of Chinese imports to 25% from 10%. Trump was still seething from last week’s news that China returned a heavily edited transcript of what the American’s believed was a previously-agreed-upon Trade deal draft.
The president’s response isn’t anything that Canada and Mexico haven’t heard before. Both countries agreed to a new trade deal, the United States-Mexico-Canada Agreement on Trade, and both countries still face U.S. tariffs.
Global equity traders reacted to Trump’s latest salvo, and the major Asian and European equity indices were sold. Gold prices climbed, and safe-haven currencies were in demand. The Australian dollar was the biggest loser in overnight markets due to the close trade relationship it has with China. Traders fear that continued trade tensions between China and the U.S. will reduce China demand for raw materials and slow global growth. Commodity currencies are vulnerable in that scenario.
The trade tensions sparked renewed demand for the Japanese yen. USD/JPY fell from 110.10 to 109.61, with additional selling pressure stemming from soft U.S. Treasury yields.
The British pound hit a one week low in early Toronto trading, continuing the decline that started last Friday. Bank of England Monetary Policy Committee member Michael Saunders remarks today contributed to GBP/USD selling pressures. He warned that a "no-deal" Brexit would hurt the currency while increasing inflation. He added that a "no-deal" Brexit would result in a weaker economy with lower business investment which would be painful. Even though he was stating the obvious, fresh GBP/USD sellers emerged.
EURUSD bounced between $1.1175-$1.1202 in choppy overnight action torn between minor safe-haven demand which was offset by Brexit risks and broad US dollar strength. There wasn’t any euro-zone data.
The Canadian dollar was largely ignored in overnight price action with USD/CAD trading in a narrow $1.3473-$1.3494 range. Canada and U.S. Trade reports are on tap this morning.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
