The Canadian dollar moved lower in a mostly quiet FX session in Asia and Europe. There is an undercurrent of concern that the Bank of Canada may be forced out of its neutral monetary policy stance by the actions of other central banks, particularly the U.S. Federal Reserve. The Federal Open Market committee meeting is set for Wednesday. A 0.25% rate cut is fully priced into markets. The surprise would be if the cut was larger. The odds of that happening are 23%. FX markets are eagerly awaiting the FOMC statement and Fed Chair Jerome Powell’s press conference for further insight into the rate outlook.
FX markets ignored reports that the U.S. administration actively discussed devaluing the U.S. dollar.
Broad U.S. dollar strength undermined the Antipodean currencies to start the week. AUD/USD and NZD/USD drifted lower, and both currencies are approaching key support levels. President Trump contradicted himself on the prospect of weakening the greenback. Last Tuesday, he said it wasn’t an option and then Friday said he was still open to it. Director of White House Trade Council Peter Navarro said the U.S. should devalue its currency. His views were opposed by Treasury Secretary Steve Mnuchin who said, "I am not going to advocate a weak dollar policy near term as Treasury secretary."
FX traders ignored the entire "currency devaluation" discussion, which may come back to bite them on the rear. The Trump administration has demonstrated that you cannot ignore even the most outlandish rumours.
The latest round of U.S./China trade negotiations kicked off this morning. Analysts suggest these talks will not result in a trade breakthrough. So does Trump. He said he expected China to drag the talks out until the U.S. election.
The U.S. dollar opened in Toronto on a mixed note with the G-10 major currencies hovering around Friday’s closing levels. The British pound was the exception. GBPUSD dropped from $1.2387 to $1.2302 in early Toronto trading after U.K. Cabinet Minister Michael Gove said the government was operating on the assumption of a "no-deal Brexit." Traders were also spooked by Conservative party gaining in polls, raising fears of a snap election.
USD/JPY inched higher on the back of general U.S. dollar strength, and steady U.S. Treasury yields. Traders are biding their time until Tuesday’s Bank of Japan policy meeting. The BoJ is widely expected to leave rates and guidance unchanged.
The Canadian dollar inched lower alongside the G-10 currencies. Traders are ignoring West Texas Intermediate (WTI) oil prices and are concerned that the Bank of Canada may follow the Fed in lowering interest rates.
There are not any top tier economic reports due today in Canada or the U.S.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
