The Canadian dollar is being undermined by a fresh wave of negative risk sentiment. The Wall Street Journal reported the U.S./China trade talks hit a snag. The U.S. wants China to commit to purchases of significant dollar amounts of agricultural products. China is loath to do so as it makes a trade agreement look to be too one-sided in favour of the Americans. China Commerce Ministry spokesman Gao Feng equated the importance of a "Phase 1 agreement" to the degree that tariffs get cancelled. President Trump has been mute on the subject of rolling back tariffs.
The toll the trade war was exacting on China’s economy was on full display overnight. China Retail Sales and Industrial Production data were a lot weaker than expected. Industrial Production rose only 4.7% y/y in October, compared to September’s 5.7% y/y increase. Retail Sales were 7.2% y/y against a forecast for a 7.8% y/y gain.
Traders did not expect any fresh monetary policy insight from Federal Reserve Chair Jerome Powell’s testimony to Congress yesterday. Their expectations were met. The Fed Chair reaffirmed market sentiment that rates would remain unchanged for the foreseeable future. He said, "We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near our symmetric 2% objective."
Concerns that the trade talks have stalled alongside a steady Fed policy outlook and the weak China data sparked a mild bout of risk aversion sentiment. EUR/USD attempted to rally after German Gross Domestic Product rose a tad higher than forecast, but the gains were not sustained. Prices dropped from the overnight peak of $1.1014 to $1.0990 in early Toronto trading. Traders ignored Eurozone GDP data and comments by European Central Bank official Luis De Guindos. He said, "A recession is a very unlikely event — that is not going to happen." But I think the main risk is that we are going to have a long period of time with (growth) below potential."
GBP/USD continued to consolidate recent gains in a $1.27760-$1.2960 range. However, prices were weighed down by weak Retail Sales data.
The Australian dollar was the biggest loser against the U.S. dollar overnight, among the G-10 major currencies. The Australian employment report showed a loss of 19,000 jobs rather than the 15,000 gain that was expected. AUD/USD sank to $0.6783 from $0.6839 on the news and is at the bottom of that range in early Toronto trading.
Traders will be alert for news on the U.S./China trade front. The day’s data is second-tier and includes U.S. Jobless Claims, Producer Price Index and the Canada New Housing Price Index.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
