The Canadian dollar is consolidating its recent gains. Last week’s robust employment report may have reduced the incentive for the Bank of Canada to trim interest rates at its October meeting which underpinned the currency. Overnight, China announced it was exempting more than a dozen U.S. imports from tariffs. The move suggests the somewhat frosty trade negotiations have started to thaw, and the so-called "riskier assets" were in demand.
The news got President Trump’s attention. He tweeted "China suspends Tariffs on some US products. Being hit very hard, supply chains breaking up as many companies move, or look to move, to other countries. Much more expensive to China than originally thought.”
AUD/USD jumped on the tariff news, but the rally stalled at resistance in the $0.6850 area. Another weaker than expected Business Confidence report also undermined the currency. However, the September uptrend is still intact. NZD/USD tracked AUD/USD moves.
USD/JPY is trading in Toronto just below its overnight peak. Prices are supported by the rebound in U.S. Treasury yields and the steepening of the yield curve.
Trump ranted against Fed policies again this morning. He tweeted "The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet..... The USA should always be paying the lowest rate. No Inflation!
"It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of "Boneheads." The tweets were ignored by traders.
EUR/USD inched higher in Asia but reversed course when Europe opened. Prices dropped from $1.1054 to $1.0998 in early Toronto trading as EUR/USD bulls get spooked ahead of tomorrow’s European Central Bank meeting. The ECB is widely expected to announce a new stimulus package which could be more aggressive than originally anticipated. The drop below $1.1020 risks further losses to $1.0875. A modicum of EUR/CAD selling has supported the Canadian dollar.
GBP/USD drifted in a narrow range with traders awaiting the next Brexit shoe to drop. The risk of a "no-deal Brexit" continues to cap gains.
The Canadian dollar is vulnerable to a selloff if tomorrow’s ECB meeting leads to a sharp fall in EUR/USD as the currency pair tend to track broad dollar moves. In addition, the recent commodity bloc currency rally has stalled at significant resistance levels.
Today’s U.S. and Canadian economic data will not have an impact on FX trading.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
