The Canadian dollar sank to the bottom of its two-week range overnight, then rallied. USD/CAD jumped from a low of $1.3135 yesterday to $1.3236 in the late afternoon, as prices tracked a broad, but relatively shallow U.S. dollar rally. The short term USD/CAD technicals are bearish, but the bears have been unable to break strong support in the 1.3130 area.
Trade negotiations are a key them in FX markets, and they were at the forefront again overnight. U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and Chinese Vice Premier Liu He spoke yesterday.
The chat was characterized by Lighthizer's office as a "constructive conversation." The Trade Representative office press release said: "Both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement."
U.S. and Canada trade relations are under duress. The Americans are thoroughly annoyed that the World Trade Organization (WTO) had the audacity to declare that the Americans were wrong to impose softwood lumber duties on Canadian softwood lumber. Trade Representative Lighthizer said "This flawed report confirms what the United States has been saying for years: the WTO dispute settlement system is being used to shield non-market practices and harm U.S. interests.”
The Americans have already slapped punitive tariffs on imports of Canadian aluminum, and the now there is an elevated risk of tariffs on softwood lumber. To the Americans, a free trade deal means "it's only free trade if Uncle Sam says so."
The news had zero impact on USD/CAD trading, but over time the risk of a new U.S./Canada trade war will limit Canadian dollar gains.
FX traders are biding their time ahead of a series of speeches from key central bankers on Thursday.
Bank of England Governor Andrew Bailey, Bank of Canada Governor Tiff Macklem, and U.S. Federal Reserve Chairman Jerome Powell are on tap. Powell’s speech could be a game-changer for financial markets.
The Fed President is expected to announce major policy initiatives, designed to boost inflation. The Consumer Price Index has been languishing well below the Fed’s target of 2.0%. The current inflation levels are a handicap to managing new financial problems.
U.S. Consumer Prices and Case-Shiller Home Price data are due today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
