FX risk sentiment has improved, and that’s good news for the Canadian dollar. The U.K.’s Financial Times reported that the U.S. was considering repealing the 15% tariffs that were imposed September 1, on $112 billion of Chinese imports. That spurred demand for riskier assets and the unwinding of safe-haven trades. Some analysts said caution is warranted, noting that a trade deal was imminent in May, just before everything went pear-shaped.
Nevertheless, the news fueled gains in the leading Asia equity indices, a rally in oil prices, and demand for the commodity bloc currencies.
AUD/USD climbed to 0.6926 from 0.6878 because of the trade news. Traders ignored October Services and Composite PMI data, which was a tad weaker than the September results but bang-on forecasts. The Reserve Bank of Australia monetary policy meeting did not offer any surprises. The Overnight Cash Rate (OCR) was left unchanged at 0.75%.
RBA Governor Philip Lowe said the outlook for the Australian economy was “little-changed” from three months ago. The RBA statement said,
“The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices in some markets and a brighter outlook for the resources sector should all support growth.” To some analysts, that statement means the RBA is on hold for a while.
NZD/USD mirrored AUD/USD moves with traders awaiting tomorrows employment report, followed by Thursday’s inflation Expectations data.
The U.S./China trade talks developments boosted U.S. Treasury yields, and USD/JPY went along for the ride. The 10-year Treasury yield rose to 1.81% from 1.75% yesterday as bonds bought as "safe-havens" were sold. The Canadian dollar benefited due to CAD/JPY demand.
EUR/USD managed a bit of a rally in Asia, but the move petered out at 1.1138 and prices retreated during the European session to open in Toronto at 1.1121. Yesterday’s speech by ECB President Christine Lagarde did not touch on monetary policy. Eurozone September PPI rose 0.1%, as expected.
GBP/USD continues to consolidate yesterday’s losses. Prices dropped from 1.2940 to 1.2875 yesterday, then drifted in a 1.2877-1.2903 range overnight, in part due to slightly better Markit Services PPI data for October (Actual 50 vs forecast 49.7) Price action will continue to be choppy and random ahead of the UK election slated for December 12.
Oil prices were one of the largest beneficiaries on the rumours of an improved tone to the US/China trade talks. West Texas Intermediate (WTI)has surged nearly $4.00/barrel since Halloween, rising to $57.33 yesterday.
The Canadian dollar rallied somewhat reluctantly, with the positive risk sentiment and gains in WTI oil. USD/CAD dropped to $1.3118 from $1.3159 overnight but has retraced some of those gains in early Toronto trading.
US and Canadian trade data are the highlights of today’s economic reports, although the impact from the data will be limited.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
