The Canadian dollar broke higher yesterday and consolidated the gains overnight. The Canadian dollar bounced off both extremes of its USD/CAD $1.3250-$1.3350 band, which contained price movements since August 19. That changed yesterday with U.S. President Trump’s apparent flip-flop on China. Friday, he announced new tariffs on Chinese goods and Monday tweeted that China wanted a "calm resolution."
Friday, China President Xi Jinping was referred to as an enemy and Monday he became a "great leader."
Trump’s reverses roiled asset markets. Friday’s new "safe-haven" trades were partially unwound Monday. The Dow Jones Industrial Average recouped about 50% of Friday’s losses yesterday. U.S. Equity futures suggest stocks will rise further when they open today.
The Canadian dollar is the best performing G-10 currency since Friday’s close and the only one to have risen, as of today’s Toronto opening. The Australian dollar is second best; it is unchanged. Recent economic data support the Canadian dollar. Last week, Canada inflation rose higher than expected, and Retail Sales beat forecasts. The data continued a series of robust economic reports and suggested there is an upside risk to Friday’s Canadian Gross Domestic Product result.
GBP/USD traders ignored the trade turmoil wreaking havoc against the major G-10 currencies, preferring to take direction from U.K. political developments. Prime Minister Boris Johnson says he wants the European Union to accept an alternative Brexit solution to what the European Union agreed to under former Prime Minister Theresa May. German Chancellor Angela Merkel and French President Emmanuel Macron indicated they would consider altering the terms which underpinned the currency pair. GBP/USD consolidated last week’s gains in a $1.2211-$1.2275 range overnight and is trading in Toronto at the top of that band.
EUR/USD remains rangebound. Friday’s drop below support at $1.1060 proved to be a "false break" and the recent attempt to break resistance at $1.1160 failed as well. EUR/USD is underpinned by lingering risk aversion sentiment. However, the sinking Chinese Renminbi and expectations that the European Central Bank will chop interest rates and reintroduce other monetary stimulus measures are weighing on the currency pair.
The Japanese yen is in demand due to falling U.S. Treasury yields and from safe-haven flows because of the US/China trade war. Earlier comments by Bank of Japan officials suggesting the need for new stimulus is also a USD/JPY negative.
The Canadian dollar is also benefiting from steady to firm oil prices. West Texas Intermediate (WTI) is trading in Toronto at $54.30 U.S./barrel, well above yesterday’s low of $53.00. Prices are supported by suggests that U.S./China trade talks have resumed. However, China trade officials deny making a call to their American counterparts on the weekend.
This morning, U.S. Consumer Confidence and the Case-Shiller Home Price Index are on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
