The Canadian dollar was steady even as trade tension turmoil roiled FX markets. Friday, China and the U.S. traded a fresh round of tariffs with each other. China, retaliating to the U.S. September 1 tariffs, announced levies of their own. Beijing said it would place new import duties on $60 billion of U.S. imports, impacting over 5,000 products.
President Trump took umbrage at China’s actions and announced new tariffs of his own. In a series of Twitter posts, he said "...unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30%.....Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!"
Financial markets certainly paid attention. Wall Street stocks got hammered and U.S. Treasury yields plummeted. Safe-haven currencies were in demand. The Japanese yen, Swiss franc and Euro surged as did gold prices.
Asia markets followed suit when they opened today. Japan’s Nikkei 225 index fell 2.17% leading all Asian bourses lower. USD/JPY gapped lower at the start of trading, dropping from 105.43 to 105.46. AUD/USD and NZ/USD dropped on the back of the new trade tensions.
Sentiment changed in Europe. Safe-haven trades were unwound with news that the U.S. and Japan agreed to a trade deal. Trading shifted into high gear when Trump tweeted "Great respect for the fact that President Xi & his Representatives want 'calm resolution.' So impressed that they are willing to come out & state the facts so accurately. This is why he is a great leader & representing a great country. Talks are continuing!"
Friday’s trade worries became Monday’s trade hopes. The Japanese yen and Swiss franc gave up a large part of their gains, and US Treasury yields rebounded to 1.518% from 1.449% in Asia. Gold prices retreated from their $1,555.00 peak, and West Texas Oil (WTI) rallied to $54.96/barrel from $53.97.
Trump made the Biarritz G-7 meeting all about him. The world leaders scrambled to gain "face-time" with the American president and the G-7 agenda was forgotten.
European economic data undermined EUR/USD. The German IFO survey was weaker than expected and helped drive EUR/USD from $1.1163 to $1.1116 in early Toronto trading.
The Canadian dollar traded sideways in a USD/CAD range of 1.3288-1.3317. The Bank of Canada’s neutral monetary policy stance is supporting the currency and offsetting broad U.S. dollar strength from risk aversion sentiment.
The U.S. Durable Goods report and Wall Street price action will dictate FX direction today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
