Canadian dollar traders are awaiting this morning’s release of the Canadian employment report details for April. The January and February job gains were stellar as Canadian added 122,700 during those two months. The March results saw some payback with a loss of 7,200 jobs recorded. Analysts are forecasting that today’s results will show a gain of 10,000 jobs in April. If so, the report will be quickly forgotten as it won’t change the interest rate outlook, in either direction.
Instead, FX traders will be watching for news on the ongoing U.S. and China trade talks. President Trump’s promise to raise tariffs from 10% to 25% on $200 billion of Chinese goods became a reality at one minute after midnight today. The FX market reaction was underwhelming.
NZD/USD rallied ahead of the deadline and then gave back some of the gains in European trading. AUD/USD traded in a similar fashion.
The Canadian dollar followed suit, posting gains in Asia and then consolidating those gains during the European session. However, the price action was well-within this week’s trading range suggesting the move was due to profit taking and position adjusting ahead of the weekend.
China’s Shanghai Shenzhen CSI 300 equity market index soared even as the U.S. tariffs went live. The index rose 3.63% as Chinese investors appeared to thumb their noses at Trump. The rally reportedly got a helping hand from "official" buying by Chinese state entities. China promised to retaliate against the higher tariffs with measures of its own.
The Canadian dollar got a modicum of support from the rebound in oil prices. West Texas Intermediate (WTI) climbed from yesterday’s $61.08 U.S./barrel bottom to touch $62.46/b during the European session. Heightened tensions between the U.S. and Iran fueled the move. The Vice-Admiral of the US 5th fleet warned that he wasn’t against sending the USS Abraham Lincoln carrier group through the Strait of Hormuz, which is right on Iran’s doorstep in response to new threats from Iran. To underscore his point, a flight of B-52 bombers landed in nearby Qatar.
The ongoing U.S./China trade talks may overshadow today’s U.S. inflation data release. Consumer Price Index is forecast to rise 2.1% y/y, in April, a tad higher than March’s 1.9% result. Core CPI is forecast at 2.1% compared to 2.0% previously. The gains are expected to be caused by higher gasoline prices. The U.S. dollar may be more vulnerable to a lower than expected result as it would reopen the rate cut debate.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
