The Canadian dollar is tracking the U.S. dollar. The greenback is drifting lower against the G-10 major currencies in early Toronto trading, and that helped the Canadian dollar to return to Thursday’s peak levels this morning. USD/CAD traded at $1.3560 on Friday before the Canada March GDP report was released and prices dropped to $1.3500 by the close of trading.
The Canadian dollar rally coincided with broad U.S. dollar selling against the major G-10 currencies, in part due to month-end portfolio re-balancing flows. Those flows were likely present today. The U.S. dollar opened in Toronto with small losses across the board, and those losses widened in early trading.
The FX risk aversion theme was evident in May with only the Japanese yen and Swiss franc recording gains against the U.S. dollar. The British pound was the worst performing G-10 currency due to British politics and the increased risk that Britain leaves the European Union without a deal. Rate cut fever drove AUD/USD and NZD/USD lower.
The U.S. and China appear to be getting set for a prolonged trade war. China released a "White Paper" on the weekend, outlining their version of the dispute. Some of their issues are 1) "Economic and trade friction provoked by the U.S. damages the interests of both countries and of the wider world" 2) "China’s technological innovation is based on self-reliance. Accusing China of intellectual property theft and forced technology transfer is utterly unfounded." 3) "The Chinese and American economies are interlinked, and bilateral trade and investment are mutually beneficial" 4) "The trade war has not 'made America great again'" 5) "U.S. trade bullying harms the world." 6) "The U.S. has backtracked on its commitments in the China-U.S. economic and trade consultations"
The issues were not unexpected, and FX markets didn’t react. Oil traders did. West Texas Intermediate (WTI) plunged in thin Asia market trading. WTI fell from Friday’s close of $53.37 U.S./barrel to $52.15/b but than fully recovered those losses (and more) touching $54.37 in early Toronto trading. Prices were supported by Saudi officials suggesting that they, and the Organization of the Petroleum Exporting Countries, would do everything they could to stabilize prices.
The Canadian dollar continues to bask in the glow of better than expected March Gross Domestic Product, which rose 0.5%, well above the -0.2% level seen in February. The gain supports the Bank of Canada’s view that the weakness seen at the beginning of the year would be temporary.
FX traders will be tracking Wall Street price action as well as the U.S. Institute for Supply Management Manufacturing data for May.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
