There isn’t any top-tier actionable U.S. or Canadian economic data available today. That was the same as yesterday leaving traders to seek out other sources of trade information. They found it in the US and China trade talks. Actually, they didn’t find any hard news; just "unnamed sources" saying China is backtracking on previous trade negotiation commitments. They also focused on renewed and rising tensions between Iran and the US. The Americans have sent a Navy aircraft carrier group into the area to counter Iran’s belligerence.
News that the U.S. planned to raise tariffs on $200 million worth of Chinese imports from 10% to 25% effective May 10 triggered a steep sell-off on Wall Street yesterday. The Dow Jones Industrial Average plunged 473 points or 1.8% yesterday hand that move spooked Asia markets overnight. Japan’s Nikkei 225 dropped 1.46% while China’s Shanghai Shenzhen 300 CSI dropped 1.43%.
The U.S. dollar was in demand in Asia except against the Japanese yen which rose on the back of safe-haven demand and because of soft US treasury yields.
The New Zealand dollar plunged to $0.6528 from $0.6602 following the Reserve Bank of New Zealand’s decision to cut the OCR rate by 0.25% to 1.5%. The RBNZ said "a lower OCR is necessary to support the outlook for employment and inflation consistent with its policy remit." They left the door open to further rate cuts saying "The Committee reached a consensus that, relative to the February Statement, a lower path for the OCR over the projection period was appropriate. The lower path reflected the economic projections and the balance of risks discussed, and is consistent with both inflation and employment remaining near the Committee’s objectives."
The news wasn’t totally unexpected, and NZD/USD recovered most of its losses by the Toronto open this morning. The Canadian dollar ignored the NZD/USD move and traded sideways until the European session started.
The British pound was the biggest mover in overnight markets. GBP/USD collapsed to $1.3003 from $1.3078 on reports that Brexit discussions between Labour and Prime Minister Theresa May’s Conservative party had dissolved into acrimony.
Oil prices erased yesterday’s gains and WTI oil declined from $62.07/barrel to $61.25/b. Traders are concerned that if the China/US talks collapse, global growth will slow which would reduce demand for crude. At the same time, U.S. oil production and inventories are rising, and there is speculation that Opec will eliminate the current production cuts at the end of June.
The risk of sharply weaker crude prices, the dovish Bank of Canada monetary policy outlook and the rising U.S. dollar index are keeping downward pressure on the Canadian dollar.
There are not any notable economic reports from Canada or the US available today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
