The Canadian dollar bounces up and down like a yo-yo on a string. The string is tied to U.S. President Trump’s finger. Trump announced that he would delay some of the planned tariffs on China, from September 1 to December 15. The news triggered a stampede out of safe-haven trades, and the Canadian dollar benefited. USD/CAD dropped from 1.3288 to 1.3188 yesterday. The move didn’t last. Prices climbed steadily overnight, and the currency pair is back at 1.3285 in Toronto, this morning.
Trump’s comments were followed by a press release from the U.S. Office of the Trade Representative. It said "Certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10%. Further, as part of USTR’s public comment and hearing process, it was determined that the tariff should be delayed to December 15 for certain articles. Products in this group include, for example, cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing."
The U.S. dollar was already under pressure after July inflation data, which was higher than expected, suggested the Federal Reserve would be less aggressive in cutting interest rates. The U.S./China trade news exacerbated the move. USD/JPY screamed higher, rising from 105.15 to 106.95 as safe-haven trades were unwound. U.S. bond prices plunged, and stocks on Wall Street recouped all of Monday’s gains. Gold and oil prices dropped, and the Canadian dollar went along for the ride.
Asian markets opened on a positive note. The Australian Westpac Consumer Confidence Index rose to 3.6% compared to -4.1% previously, giving AUD/USD a lift. However, the mood soured. Chinese Retail Sales and Industrial Production data for July, were worse than expected and the rally became a retreat.
USD/JPY retreated on the China news and has retraced almost half of yesterday’s move, in part because US Treasury yields returned to yesterday’s low.
EUR/USD traded steadily despite the trade news drama and weak economic data. Headline German Q2 Gross Domestic Product q/q fell 0.1% compared to the 0.4% gain previously. Analysts warn that the country is nearing recession territory. Eurozone data wasn’t much better. Q2 GDP was 0.2% as expected, but Industrial Production and employment data were weaker than forecast. However, the latest drift towards risk aversion sentiment helped offset selling pressures from the weak data.
GBP/USD got a temporary boost from a jump in inflation to 2.1% y/y in July from 2.0% y/y in June. PPI data was steady, and the DCLG House Price Index was a tad lower. The rally ended when U.K. Prime Minister Boris Johnson said he would not compromise in the Brexit deal-making a "no-deal" Brexit more likely.
There are not any Canadian economic releases today, and the U.S. data is second-tier and not a factor for FX markets.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
