The Canadian dollar is unable to sustain rallies or losses beyond and entrenched USD/CAD range of $1.3140-$1.3440 for over two months. It is not alone. The G-10 major currencies have been mostly rangebound during the same period due to uncertainties around global trade growth and central bank monetary policies.
This week the U.S. Federal Reserve cut rates, the Bank of Japan and Bank of England left rates unchanged while Norway’s Norges Bank raised rates by 0.25%. No matter what action was taken, the underlying theme in the central bank policy statements was "downside risks to their outlook from global trade tensions."
Those global trade tensions may be abating somewhat. Chinese and U.S. trade officials are meeting in Washington. CNBC reported that the Americans are temporarily exempting over 400 Chinese products from tariffs, which were levied last year. The debate is whether the exclusion involves progress with the trade talks or just the U.S. repairing some of the damage that the tariffs inflicted on its economy.
Asia FX markets had a modest positive risk bias, in part to reports about Brexit. AUD/USD and NZD/USD rallied but erased all the gains in Europe. AUD/USD opened in Toronto, unchanged, while NZD/USD lost ground.
USD/JPY dipped during the Asia session and then recouped those losses in Europe, only to open in Toronto unchanged from Thursday’s close. Price action mirrored U.S. 10-year Treasury price changes.
GBP/USD hung on to yesterday’s gains and extended them during the Asia session. However, skepticism about the reported "progress" in the Brexit talks along with a dose of profit-taking knocked GBP/USD from $1.2580 to $1.2490 in Toronto trading. European Union President Jean-Claude Juncker said that a deal was possible before the October 31 deadline. U.K. Prime Minister Boris Johnson said there was progress with the Brexit negotiations, but the Irish Deputy Prime Minister disputed that claim. He said, "we are not close to a deal." GBP/USD has given back all of yesterday’s gains.
EUR/USD tracked GBP/USD lower. EUR/USD selling was exacerbated by weaker-than-expected German Producer Price Imdex data. August PPI fell 0.5% compared to a 0.1% rise in July.
St Louis Fed President James Bullard explained his reasons for dissenting at Wednesday’s Federal Open Market Committee vote. He wrote:
“In my view, lowering the target range by 50 basis points to 1.50%-1.75% would have been a more appropriate action. The following considerations factored into my decision.
"First, there are signs that U.S. economic growth is expected to slow in the near horizon. Trade policy uncertainty remains elevated, U.S. manufacturing already appears in recession, and many estimates of recession probabilities have risen from low to moderate levels. Moreover, the yield curve is inverted, and our policy rate remains above government bond yields for nearly every country in the G-7.”
“Second, core and headline personal consumption expenditures (PCE) inflation measures continue to run some 40 to 60 basis points, respectively, below the FOMC’s 2% inflation target. Market-based measures of inflation expectations continue to indicate expected longer-term inflation rates substantially below the Committee’s target. This is occurring despite the 25-basis-point cut in July and the 25-basis-point cut that was expected for the September meeting. While the unemployment rate is low by historical standards, there is little evidence that low unemployment poses a significant inflation risk in the current environment."
Canadian July Retail Sales were forecast to rise 0.6% compared to 0.0% in June.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
