The Canadian dollar ignored U.S./China trade news headlines, overnight. The rest of the FX majors did not. Chinese Ministry of Commerce Spokesman Gao Feng said that both sides agreed to phase in the removal of trade tariffs, admitting that they were close to a Phase 1 deal. The news triggered a fresh round of "risk-on" demand, boosting global stock prices, U.S. equity futures, oil, and all the major G-10 currencies except for the Japanese yen. The loonie’s participation in the rally was limited.
The risk-on sentiment was an abrupt "about-face" from yesterday’s risk-off bias. The U.S. dollar closed out yesterday’s Toronto session with modest gains all around. Traders became disenchanted with the state of the trade talks on reports that if there was a Phase 1 deal, it might not get signed until some time in December.
The "risk-on, risk-off" price action demonstrates the fickleness of FX traders. Despite the choppy, up-and-down price action in most of the G-10 major currencies, they are all virtually unchanged from yesterday’s Toronto open. There isn’t any doubt that the uncertainties surround global trade, central bank monetary policies and risks associated with Brexit are stifling FX trade.
EUR/USD has bounced between $1.1055-$1.1095 in the past 24 hours. A short term negative bias lacks conviction without a confirming move below support in the $1.1050 zone. EUR/USD is weighed down by weak German economic data. Factory orders fell 0.6% in September, a tad worse than the -0.4% forecast. The European Union Commission didn’t help. It cut its 2019 and 2020 Eurozone growth forecasts again, predicting 2019 growth at 1.1% (previously 1.2%). European Commission Vice President Valdis Drombrovskis said: "we may face difficulties in the future: a period of great uncertainty related to trade conflicts, heightened geopolitical tensions, persistent weakness in the manufacturing sector and Brexit."
The Bank of England (BoE) left U.K. interest rates unchanged at 0.75%, in a 7-2 vote. The result was universally expected. Tweaks to the 2019 and 2020 growth forecasts were a wash and forecast growth of 1.3% over both periods. However, BoE Governor Mark Carney managed to knock GBP/USD lower when he said risks to U.K. growth were skewed to the downside. GBP/USD dropped from $1.2875 to $1.2807 during Carney’s press conference.
USD/JPY dropped as U.S. Treasury yields soared following the China/U.S. trade developments, however, the losses were small and prices recovered in early Toronto trading.
AUD/USD got a twin boost from the trade news and a jump in Australia’s trade surplus. NZD/USD tracked AUD/USD higher.
The Canadian dollar continues to drift inside a narrow trading band. The dovish Bank of Canada outlook offsets support from firming oil prices. There aren’t any Canadian economic data available today, and the U.S. data is second-tier.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
