Canadian dollar traders are cautious. They aren’t the only ones. Global FX markets were trading on the defensive with a whiff of risk aversion sentiment permeating the air.
President Trump tweets elevated trade tensions when he wrote: "We are right where we want to be with China. Remember, they broke the deal with us & tried to renegotiate. We will be taking in Tens of Billions of Dollars in Tariffs from China. Buyers of product can make it themselves in the USA (ideal), or buy it from non-Tariffed countries... ....We will then spend (match or better) the money that China may no longer be spending with our Great Patriot Farmers (Agriculture), which is a small percentage of total Tariffs received, and distribute the food to starving people in nations around the world! GREAT!”
China hasn’t risen to Trump’s bait. It hasn’t retaliated with tariffs of its own and so far is content to chastise the Americans in the press. A former Minister of Commerce said "China will not only act as a kung fu master in response to U.S. tricks, but also as an experienced boxer and can deliver a deadly punch at the end.” One of those kicks could be aimed at Boeing, which was hoping for a 100-plane order from China, worth about $10 billion.
FX traders kept their powder dry overnight, content to keep the major currency pairs close to Friday’s Toronto closing levels. In Asia, safe-haven demand for Japanese yen sent USD/JPY down from 109.86 to 109.61. A dip in US 10-year yields supported the USD/JPY selling.
AUD/USD traded lower and with a negative bias because of the trade tensions and weaker than expected Home Loan and Investment Lending data. NZD/USD followed Aussie down.
EUR/USD and GBP/USD were stagnant without any economic news to stimulate trading. Political discourse around Brexit has GBP/USD traders wary of a sharp downside move.
Canadian dollar gains after Friday’s employment report have faded. Canada recorded its best-ever monthly gain in employment with the addition of 106,500 jobs. Bank of Canada Governor Stephen Poloz has stated that he believes first quarter economic weakness was due to "transitory effects" and that the economy would rebound in the second half of the year. Friday’s data goes a long way in supporting his view.
USD/CAD dropped from $1.3480 to $1.3380 after the report. However, broad U.S. dollar demand because of the U.S. imposition of fresh tariffs on Chinese imports undermined the Canadian dollar.
There aren’t any Canadian or U.S. economic reports on tap today. FX traders will be on alert for trade news while watching equity market price action.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
