The Canadian dollar sank alongside the rest of the G-10 major currencies yesterday and consolidated those losses overnight. Asia and European markets continued to digest the fall-out from Wednesday’s carnage on Wall Street
The Dow Jones Industrial Average plunged a whopping 800 points in the largest fall this year. Not to be out-done, the S&P 500 fell 2.93% and the NASDAQ dropped 2.80%. The Canadian TSX index outperformed its American counterparts, losing only 1.86%.
The selloff was the result of a lot of market negatives coming to a head at the same time. Global central banks are united in their concerns the prolonged U.S. and China trade war is causing an economic slowdown in the developed markets. President Trump’s actions in the past few week’s fueled uncertainty. Trump said he would slap new 10% tariffs on China imports beginning September 1, and the Treasury Department designated China as a currency manipulator. Then he announced a reprieve. He said he would delay imposing the new 10% tariffs on some Chinese goods until December 15.
While all that was going on, the U.S. and Iran were embroiled in a nasty dispute. The British seized an oil tanker containing Iranian crude as it was supposedly in violation of U.N. sanctions. Iran retaliated against U.K. shipping. Yesterday, the U.S. decided it would make a claim against the seized Iranian tanker.
The ongoing U.K. Brexit mess is another issue concerning global markets. The British pound slid erratically in the past few weeks which fueled sharp moves in EUR/GBP and GBP/JPY and the contagion from the volatility spread to other G-10 currency pairs.
The European Central Bank all but assured markets that another round of monetary stimulus was in the cards for the September meeting because of continued domestic economic weakness. Yesterday, a mixture of soft Eurozone and German data exacerbated recession fears.
Things got nasty during the New York session. 10-year US Treasury yields fell below two-year Treasury yields which signaled a coming recession. The yield curve predicted every recession except for one, since 1955.
The Canadian dollar was sold alongside the rest of the G-10 currencies except for the traditional safe-haven currencies. The Japanese yen and Swiss franc rallied. The Canadian dollar also suffered from falling oil prices. West Texas Intermediate dropped after the U.S. Energy Information Administration reported crude inventories rose in the week ending August 9. Oil prices were also weighed down by slowing global growth worries.
There are a lot of U.S. economic reports on tap today, including July Retail Sales. Better-than expected results might ease recession fears and result in a mild "risk-on" rally.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
