The Canadian dollar popped higher during the European session alongside a mild shift to positive risk sentiment. A spokesman from China’s Ministry of Commerce poured some sugar on the bitter tone of recent U.S./China trade comments. Spokesman Gao Feng said that China would not retaliate when new U.S. tariffs take effect on Sunday.
He didn’t say forever, just not immediately: "China has ample means for retaliation but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war. China is lodging solemn representations with the U.S. on the matter."
Gao added that China and the U.S. are holding face-to-face talks in September.
The China story provided a glimmer of hope in an otherwise quiet market and sparked a furor of safe-haven trade unwinding. The Japanese yen and Swiss franc plunged (relatively speaking) with USD/JPY touching 106.35 from a low of 105.85. Interestingly, the yen sank despite the U.S. two-year/10-year yield curve remaining inverted suggesting U.S. recession fears take a back seat to US/China trade hopes, at least for today.
USD/CHF climbed from $0.9802 to $0.9841 but slipped to $0.9824 in early Toronto trading.
EUR/USD inched lower, albeit in a narrow $1.1070-$1.1086 range. A slew of Eurozone and Euro-area economic data reports were a tad on the weak side which weighed on the single currency. More significant data is on tap tomorrow when Eurozone Inflation and employment reports are released. The single currency didn’t get much in the way of a relief rally after Italy managed to resolve its political crisis. Last week, Giuseppe Conte resigned as Prime Minister and yesterday was named Prime Minister.
The British pound had a wild day on Wednesday after U.K. Prime Minister Boris Johnson suspended parliament. GBP/USD collapsed to $1.2155 from the $1.2280 area on renewed fears that Britain would exit the European Union without a deal. Bottom-fishers emerged, and the currency bounced back to $1.2220 by the end of the day. GBP/USD consolidated the move overnight, trading in a $1.2184-$1.2220 band,
In Asia, NZD/USD came under pressure following weaker than expected ANZ Business Confidence data. It exacerbated bearish sentiment due to the Reserve Bank of New Zealand’s dovish monetary policy stance. NZD/USD dropped to $0.6308 from $0.6345 but fully recouped those losses by the Toronto open, thanks to the China story.
West Texas Intermediate oil prices held on to recent gains. WTI climbed to $56.18/barrel from $53.65 after American Petroleum Institute (API) and Energy Information Administration (EIA) reported large declines in weekly crude stocks inventories. Hopes for a better global growth outlook from new U.S./China trade talks supported prices.
The Canadian dollar is still trapped in a USD/CAD $1.3230-$1.3350 range, and traders are hoping that Friday’s Canadian gross domestic product data will provide new direction.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
