The Canadian dollar has recouped all the losses it incurred over the past week. U.S. President Trump gets credit for the improvement. On Thursday, he reportedly called China President Xi Jinping and renewed the trade dialogue. Following the call, he is said to have instructed senior officials to draft a potential agreement. The rumour is that Trump would like to announce a deal at the G-20 meeting on November 30 in Argentina.
There is a lot of debate about the motive for Trump’s call, especially since it occurred just five days before the U.S. Mid-Term elections. The Democrats are expected to win enough seats to control the House of Representatives. If so, it would hamper Trump’s agenda for his remaining term. Skeptics believe that he made the overture to China as an election ploy to tell voters that his administration is improving their lives.
Regardless of the President’s motives, the renewed China/U.S. trade dialogue was just was markets needed. Asia equity indices rallied. China’s Shenzhen CSI 300 Index surged 4.21% followed by Japan’s Nikkei 225 which gained 2.56%. The Chinese yuan soared as well. European equity indices followed the Asia indices higher, supported by yesterday’s end of day gains on Wall Street.
The positive risk sentiment led to another spike in the Australian dollar which was the best performing major G-10 currency overnight. AUD/USD is well on its way to recouping all of its October losses, thanks to the fresh trade talks and the bounce in commodity prices.
The Canadian dollar is trading near strong USD/CAD support in the $1.3030-50 area. Further gains may be difficult due to the steep plunge in oil prices in recent days. WTI oil prices are trading at levels last seen in April. Steadily rising U.S. crude inventories have precipitated the slide. Yesterday’s news that the U.S. issued waivers to eight countries to enable them to continue to import Iranian oil, free of U.S. penalties, exacerbated the move lower. Those countries include China, India, Japan and South Korea.
The positive risk tone could turn sour after the release of the U.S. employment report today. The U.S. is expected to have added 190,000 jobs in October. There is an upside risk to the forecast. Better than expected data, including higher average hourly wages, could spark fresh demand for U.S. dollars. Analysts would worry that the strong data would encourage the Federal Reserve to increase the pace of U.S. rate increases.
Canadian employment data is also due. Canada is expected to add 15,000 jobs in October. A weaker-than-expected result combined with a better than expected U.S. data would knock the Canadian dollar for a loop. The Canadian dollar and the other G-10 currencies are also vulnerable to a profit-taking selling as traders book profits ahead of the weekend.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
