The Canadian dollar traded sharply lower overnight and opened in Toronto at its lowest point. The loonie came under pressure along with the other commodity bloc and the G-10 major currencies as risk sentiment soured on several concerns.
The U.S. political drama will intensify today if U.S. Democrat House Leader Nancy Pelosi delivers on her promise to impeach President Donald Trump if Vice-President Mike Pence doesn’t use the 25th Amendment to the U.S. Constitution to remove Trump first. He probably won’t, and the rest of the drama is merely noise.
What isn’t noise is the latest actions by the outgoing administration to antagonize China. Trump has been aggressively taunting Beijing since he lost the election. He ordered Chinese stocks to stop trading in the U.S. and shut down the use of eight Chinese apps. He sent U.S. Navy warships through the Strait of Taiwan on Christmas Eve, and on the weekend, Secretary of State Mike Pompeo upped the ante. He said in a press release: "I am lifting all of these self-imposed restrictions. Executive branch agencies should consider all 'contact guidelines' regarding relations with Taiwan previously issued by the Department of State under authorities delegated to the Secretary of State to be null and void."
China is not amused. The editor of the Global Times wrote "PLA fighter jets can fly over Taiwan island anytime and the option of using military means to solve Taiwan question will also be put on the table."
However, those tensions will likely dissipate on January 20 when Joe Biden takes office. He is on record for keeping the status quo in U.S./China relations over Taiwan.
The U.S. dollar is getting additional support from Treasury yields, and putting the squeeze to short dollar positions, in the process. U.S. 10-year Treasury yields have soared from 0.919% the day before the Georgia Senate run-off vote to 1.112% today. That’s because Biden’s party controls both the Senate and the House, allowing him to move forward with his agenda.
That agenda includes plans for trillions and trillions of dollar in new stimulus spending.
Traders were also concerned that the over 484,000 new coronavirus cases reported in the U.S. on the weekend would delay the anticipated U.S. and global economic rebound. The Canadian dollar was collateral damage when traders turned risk-averse.
The Bank of Canada quarterly Business Outlook Survey is being released today. It should not have much bearing on the Canadian dollar. The latest COVID-19 surge and lock-down measures across Canada will colour the outlook.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
