The Canadian dollar is trading with a firm tone. Prices are underpinned by what appears to be a breakthrough in the Phase 1 U.S./China trade talks. Yesterday, President Trump tweeted "Getting VERY close to a BIG DEAL with China. They want it, and so do we." The tweet led to a flurry of demand for the so-called "riskier assets." The Australian and New Zealand dollars rose as did West Texas Intermediate (WTI) oil prices. The Canadian dollar went along for the ride.
However, news of the breakthrough is hearsay. There haven’t been any official statements from senior U.S. trade negotiators or their counterparts in China. Instead, the details of the agreement come from Michael Pillsbury, a "China expert" from the Hudson Institute, who claimed he heard the facts from the President.
According to Pillsbury, the President signed off on tariff reductions and the cancellation of the December 15 tariff increase. In return, China will buy $50 billion worth of U.S. agriculture products, improve intellectual property protections, and open its financial services market. At first glance, it looks like China gives up far more than it gets, which may be why Beijing is not saying anything on the matter.
GBP/USD had a busy session overnight, rising from $1.3165 to $1.3510 and then falling to $1.3357, before opening in Toronto at $1.3392. U.K. Prime Minister Boris Johnson’s Conservative party won 364 seats compared to Labour's 203, giving Johnson a 38-seat majority and a clear mandate for his Brexit vision. The Prime Minister intends to “Brexit" on January 31, 2020.
The U.S. dollar is trading in Toronto with a negative bias and sharply lower than it was at yesterday’s close. The prospect of a Phase 1 trade deal sparked a flurry of "risk-seeking" trades with AUD/USD leading the charge, since Tuesday., followed closely behind by NZD/USD.
Oil traders got into the act as well. West Texas Intermediate, (WTI), the North American benchmark climbed from $58.11/b on Wednesday to $59.92/b in Toronto, today. Prices are supported by the Organization of the Petroleum Exporting Countries and Russia agreeing to an additional 500,000 barrel/day in production cuts until the end of March 2020, rising U.S. crude inventories and hopes of increased global demand spurred by a China/U.S. trade deal.
The surge in oil prices and the trade deal news has fueled demand for the Canadian dollar, but its gains have lagged those of the antipodean currencies. Yesterday’s speech by Bank of Canada Governor Stephen Poloz did not factor into Canadian dollar price action.
Traders will be on alert for official confirmation and details of a Phase 1 deal today. The only major economic data available is U.S. Retail Sales, which is expected to show a 0.5% m/m rise in November.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
