The Canadian dollar traded rather calmly overnight, despite FX turmoil in the rest of the G-10 major currencies. The U.S. dollar soared on the back of safe-haven demand in Asia after a senior White House advisor claimed the US-China Phase 1 trade deal was over.
A FOX News reporter interviewed Peter Navarro, Director of the National Trade Council. She asked, "given everything that has just happened and all the things you just listed, is that over?"
Navarro responded "Yes!"
He went on to explain that China knowingly signed the deal after sending "hundreds of thousands of people to this country to spread that virus."
Traders in Asia only heard "it’s over." They bought U.S. dollars, bought U.S. bonds, and sold global equities and S&P 500 futures. The drama was short-lived. After hearing of the carnage sparked by his comments, Navarro claimed his remarks were taken out of context. However, it wasn’t until President Trump tweeted "The China Trade Deal is fully intact. Hopefully, they will continue to live up to the terms of the Agreement!" that markets unwound the move.
EUR/USD dropped to $1.1234 then bounced to $1.1311 in early Toronto trading. German, French, and Eurozone Manufacturing Purchasing Managers' Index reports were better than expected, suggesting that the post-COVID-19 recovery may be quicker than predicted. EUR/USD technicals are bullish while prices are above $1.1240, looking for further gains to $1.1430.
GBP/USD bounced around in a $1.2438-$1.2511 range. U.K. Markit Manufacturing PMI rose 50.1 in June, compared to 40.7 in May. However, the results were tarnished by concerns that the U.K. will leave the EU on December 31, without a trade deal, which would undermine the U.K. economy. Also, GBP/USD’s failure to take out resistance at 1.2550, paints a bearish intraday technical picture.
USD/JPY plunged to 106.75 from 106.90 at Monday’s close following Navarro’s remarks. Prices rebounded with a vengeance following Trump’s tweet and touched 107.21 before settling back to 106.95 in early Toronto trading.
The rally follows a recovery in US Treasury yields. The 10-year Treasury yield rose to 0.729%from 0.681%.
Canadian dollar traders ignored Bank of Canada Governor Tiff Macklem’s speech yesterday, mainly because he didn’t provide any new insight into domestic monetary policy. Instead, traders bought the currency due to the improved risk sentiment tone and additional gains in oil prices.
Once again FX traders are unlikely to pay any attention to this morning’s U.S. economic data releases, preferring to be guided by Wall Street moves.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
