The Canadian dollar came under renewed pressure overnight. Another drift into risk aversion style trades sparked by threatening comments in Chinese media triggered fresh U.S. dollar demand. The editor of a Chinese newspaper suggested that China could halt exports of rare minerals to America.
The rare minerals are a group of 17 elements used in the production of electronics, renewable energy, and glass. They have critical defense uses including night vision goggles, precision-guided weapons and communications equipment. Enough so, that the U.S. Geological survey designated them as critical to the economy and national defense, as per a BBC article.
Currently, China is the source of 80% of all rare earth mineral imports into the United States. If the Chinese government disrupted this export, it would seriously escalate trade tensions. There wasn’t any actionable, top tier data available overnight, which may have exaggerated the impact of the rare minerals story on markets.
Global equity indices took their cue from Wall Street. Asia closed with losses, led by a 1.2% drop in the Nikkei 225 while European bourses are in the red. Wall Street is poised to open in negative territory as well.
Safe-haven demand for Japanese yen fueled sales of CAD/JPY, which helped to undermine the Canadian dollar. USD/JPY was under additional pressure as U.S. Treasury yields continued to move lower.
European traders bought U.S. dollars across the board when they started their day. EUR/USD dropped to $1.1150 from $1.1171 and is trading in Toronto at the bottom of that range. Weaker than forecast German employment data combined with Italian budget concerns and the ongoing Brexit woes supported EUR/USD sellers. Safe haven demand for Japanese yen and Swiss francs led to selling of EUR against those currencies.
Sterling continued its month-long decline, falling from $1.2664 to $1.2628 in early Toronto trading. U.K. political issues are undermining the currency pair with concerns about Prime Minister Theresa May’s replacement and its impact on Brexit.
Oil prices collapsed overnight. West Texas Intermediate plunged from $59.03 U.S./barrel to $58.00/b following the China rare minerals threat. The risk of slower global growth because of an extended U.S. and China trade war outweighed the prospect of existing production cuts continuing until the end of the year.
The Canadian dollar bounced off of support in the USD/CAD 1.3520 area in early Toronto trading. The Bank of Canada is widely expected to leave Canadian interest rates unchanged at 1.75% today. Analysts do not expect much change in the BoC policy statement, mainly because it would be too soon after changing to a "neutral" stance at the previous meeting.
There isn’t any U.S. data of note today suggesting FX moves will track Wall Street price action.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
