The Canadian dollar remains locked in a narrow trading range. The USD/CAD's $1.3290-$1.3345 trading band has contained price action since October 3, but events are coming to a head which could re-draw the trading boundaries, again.
The minutes from the U.S. Federal Open Market Committee (FOMC) September 17-18 meeting were released yesterday afternoon. They reinforced the odds of an October 30 rate cut since according to the minutes "for most participants, that economic outlook was premised on a somewhat more accommodative path for policy than in July. Participants generally had become more concerned about risks associated with trade tensions and adverse developments in the geopolitical and global economic spheres."
U.S. dollar sentiment turned negative following the FOMC minutes, and the greenback finished the New York session with losses across the board. The selling pressure resumed in Asia and continued in Europe, and in early Toronto trading this morning, exacerbated by China/U.S. trade talk speculation.
The face-to-face U.S./China trade negotiations resume today amidst a swirl of news and rumours. The South China Morning Post reported that trade talks, at the deputy level, didn’t make any progress. The U.S. wants a resolution to what they call "forced technology transfers" while China refuses to discuss it. Other problems are about China state subsidies and these talks are occurring under the threat of a tariff bump on Chinese imports starting October 15.
However other reports said China was open to a partial U.S. trade deal, provided the new tariffs are scrapped.
FX traders focused on the positive rumours which sparked new "risk-seeking" trades. EUR/USD managed to rally to $1.1032 from $1.0972 along with the commodity currency bloc. EUR/USD traders ignored weaker than expected German trade data.
GBP/USD traders appeared to have forgotten about the rising risk of a "no-deal Brexit." GBP/USD climbed from $1.2205 to $1.2264 on the back of the broad U.S. dollar weakness while ignoring a slew of weak economic reports. U.K. August Gross Domestic Product fell 0.1%.
However, the sting was soothed by the upward revision to the July result. Manufacturing and Industrial production data were below expectations.
USD/JPY climbed to 107.76 from 107.04, boosted by U.S. dollar weakness, and the unwinding of some safe-haven trades on hopes of a U.S./China trade deal. U.S. 10-year Treasury yields bounced off their overnight low of 1.554% to 1.587% which added to USD/JPY support.
Positive trade talk sentiment drove AUD/USD and NZD/USD higher. Both currency pairs got an added lift from better than expected economic data. Nevertheless, their short-term downtrends are still intact.
Traders are awaiting this morning's U.S. inflation data. An upside surprise could kick off a new round of U.S. dollar buying if it leads to lowered rate cut expectations.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
