The Canadian dollar was beaten with the proverbial ugly stick yesterday. Rumours that U.S. President Trump was taking America out at the G-7 meeting sank the Canadian dollar. USD/CAD rocketed to $1.3065 on the news. There was substance to the story. White House Economic Director Larry Kudlow said "President Trump prefers bilateral agreements," which Trump said last week. A senior Republican politician said that the time to get a North American Free Trade Agreement through Congress in 2018 had passed. USD/CAD bounced erratically in a $1.2948-$1.3065 range.
The Canadian dollar recouped some of the losses by the end of the day and then added to those gains in overnight trading. ABC news said U.S. Treasury Secretary Stephen Mnuchin asked Trump to exempt Canada from tariffs when he returned from the G-7 Finance Ministers meeting. That story drove USD/CAD through support at $1.2960 to $1.2910 in early Toronto trading.
The Canadian dollar is getting additional support from expectations that this morning’s domestic data will be better than forecast. Canada’s Merchandise Trade deficit is forecast to narrow to $3.4 billion from the March reading of -$4.14 billion. The Ivey Purchasing Managers' Index index may come in at 69.7, a tad worse than April’s 71.5. However, this series is erratic, and a jump in the reading would encourage USD/CAD selling.
The Canadian dollar was also the beneficiary of a shift to negative U.S. dollar sentiment. The U.S. dollar opened in Toronto on a down note, posting losses against all the major G-7 currencies. Only the Japanese yen and Swiss franc were weaker than yesterday’s closing level.
Positive developments around the China/U.S. trade spat improved FX market risk sentiment, giving the Canadian dollar a boost. China has reportedly offered to import an additional $25 billion to $75 billion worth of American products over the next two years. President Trump and his advisors are discussing the proposal.
European news exacerbated U.S. dollar weakness. The Chief Economist of the European Central Bank (ECB), Peter Praet, confirmed that a discussion on the timing for ending the Quantitative Easing program would occur at next week’s meeting. Many believed that the ECB would announce an end date. The subsequent rally in EUR/USD bolstered the Canadian dollar.
Today’s U.S. economic data releases should not have much impact on FX trading. However, the Energy Information Administration's weekly crude stocks data could add another layer of support to the Canadian dollar if U.S. inventories decline.
