The Canadian dollar added to yesterday’s gains in steady markets overnight. The additional gains were driven by an increase in positive risk sentiment following upbeat news from senior U.S. and Chinese trade officials about the implementation of the Phase 1 trade deal.
U.S. Trade Representative (USTR) Robert Lighthizer, Treasury Secretary Steven Mnuchin, and China Vice Premier Lui He reported having positive talks about implementing the trade deal signed in January. The USTR statement said "Both sides agreed that good progress is being made on creating the governmental infrastructures necessary to make the agreement a success. They also agreed that in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner."
The trade news encouraged broad U.S. dollar selling as did the outlook for Federal Funds futures. Those futures are pricing in negative U.S. interest rates starting in December 2020, even though many Federal Open Market Committee officials oppose the notion.
Oil prices consolidated recent gains which brought prices back to mid-April levels. West Texas Intermediate. WTI traded in a $23.37-$24.90/barrel range overnight as trading in Toronto at $24.00/barrel. Prices continue to be supported by the massive 10 million barrel/day production cuts agreed to by the Organization of the Petroleum Exporting Countries and Russia, which took effect May 1.
Last week Reuters reported Saudi Arabia decided to end its price war after President Trump threatened that if they did not do so, the U.S. would end its support of Saudi Arabia.
FX trading was lighter than usual in Europe because the UK was closed to celebrate the 75th anniversary of VE Day (Victory in Europe).
Traders also lacked the motivation to get involved ahead of today’s U.S. and Canadian employment reports. The U.S. is expected to lose 22 million jobs in April, while the unemployment rate jumps to 14% from 4.4% in March. The results will not surprise anyone, due to the aggressive measures taken to combat COVID-19.
Arguably, better than forecast results will have a bigger impact on the U.S. dollar than weaker results. That’s because traders will decide the US economy didn’t suffer as much as expected.
Canada’s is expected to report four million job losses and an unemployment rate of 18%. Worse-than-expected data will encourage Canadian dollar selling.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
