The Canadian dollar retraced all of this week’s gains yesterday and then extended the move in overnight markets. It was not alone. On Tuesday, FX traders scrambled to buy U.S. dollars on concerns that President Trump and Chinese President Xi Jinping had differing views about the conclusions from the trade talks in Argentina. The White House statement provided details that were not included in the official China statement.
Trump tweeted that China would remove tariffs on U.S. cars. China did not mention anything about U.S. automobiles. Markets concluded that the trade talks results were more than few french fries short of a Happy Meal, especially Wall Street. Monday’s equity market gains evaporated on Tuesday, and the major indices closed with nasty losses. Earlier today, the China Ministry of Commerce confirmed that they agreed to a 90-day trade war truce after announcing some action on Fentanyl exports.
FX markets did not react to the news.
The Wall Street meltdown did not go unnoticed by FX markets. The U.S. dollar surged led by plunging commodity bloc currencies. Renewed fears of a protracted China/U.S. trade war knocked AUD/USD off a lofty perch and sent it tumbling. NZD/USD followed suit, albeit less
dramatically.
The Canadian dollar got hammered. The currency was probing support levels (USDCAD $1.3160) before the selloff. It sank steadily throughout the day and continued to do so in overnight trading, with USD/CAD touching 1.3293 before easing off.
Many external factors are influencing the Canadian dollar. Oil prices have fallen dramatically in the past few months, and those losses managed to put a floor on Canadian dollar gains. The Organization of Petroleum Exporting Countries (OPEC) is meeting for its 175th meeting in Vienna on Thursday. There are reports that Saudi Arabia is urging cartel members and Russia to agree to a further 1.3 million barrel per day production cut. The Cartel is attempting to shore up prices in the face of rising US crude production, and inventories in an environment where global consumption may decrease.
Russia (a non-OPEC nation) is reportedly balking at the size of the cuts expected from them. Iran says it will not consider any production moves while under sanctions and Qatar plans to leave the cartel in January. Alberta announced oil production cuts of 325,000 barrels/day, but that was due to storage issues from overproduction.
The Canadian dollar is also suffering from concerns that the Bank of Canada (BoC)could issue a slightly dovish policy statement this morning. They are widely expected to leave the overnight rate unchanged. However, traders are concerned that the weaker than expected September Gross Domestic Product data and the steep drop in oil prices since the last meeting, will lead the BoC to err on the side of
caution.
There are no U.S. or Canadian economic reports due today. Wall Street and U.S. Government offices are closed for a national day of mourning, to honour former President George H.W. Bush.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
