The Canadian dollar traded quietly overnight and seemed to turn a deaf ear the Canadian election results. FX markets, in general, traded in a subdued manner even though there were a few positive signs from the US/China trade war front.
Yesterday, President Trump said that the trade talks were going well and U.S. Trade Representative Robert Lighthizer seemed to echo that sentiment. He said the negotiators were working toward finalizing phase 1in time for the Asia Pacific Economic Cooperation (APEC) Summit, in Chile, November 16-17. National Economic Advisor Larry Kudlow said that 15% tariffs on some consumer goods could be withdrawn as the trade talks progress.
Despite the positive tone to the official comments, the FX reaction was underwhelming. AUD/USD and NZD/USD traded higher in Asia but reversed the move during the European session. The Canadian dollar mirrored the antipodean currency movements and gave back its overnight gains in early Toronto trading, this morning.
The Canadian election did not have an immediate impact on the Canadian dollar, but the long-term effect may be harmful. Prime Minister Trudeau managed a victory, of sorts. He will lead another government, but his Liberal Party did not win a majority. He will need to work closely with the NDP and/or the Bloc Quebecois if he wants to avoid a snap election. The Liberals and the NDP are never confused with fiscal responsibility. New Democrat Leader Jagmeet Singh said he would run a $32.7-billion deficit if he were Prime Minister. The Liberals forecast a $21-billion deficit in 2019. The combined tally would be $53.7 billion. Trudeau demonstrated his ignorance of simple finance when he said, "budgets balance themselves." He wasn’t joking.
Canadians will pay the price for this fiscal irresponsibility. Millennials, who are already struggling to purchase a home, will find it increasingly difficult as their buying power diminishes. The new coalition government wouldl raise taxes in the guise of climate change initiatives. Canada’s competitiveness in global markets will be imperiled from higher taxes needed to fund interest payments on the higher deficit, which in turn may lead to a recession. Trudeau and the Liberal/NDP coalition would run up bills today that will have to be paid by future generations.
The U.S. dollar opened in Toronto on a mixed note, with small gains by the commodity bloc currencies. Those gains disappeared. The greenback is a tad firmer across the board, mostly due to profit-taking. There were not any notable economic reports, and the ongoing U.K. Brexit drama has sidelined traders.
EUR/USD traded narrowly but with a bearish bias. News that the European Union demanded "clarification" from France and Italy over their proposed budgets didn’t help sentiment.
Traders are looking ahead to this morning’s release of the Bank of Canada Business Outlook Survey and Canadian Retail Sales data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
