The Canadian dollar has yet to recover following Friday’s post-U.S. and Canadian employment report selloff, but upside momentum has stalled. Traders are patiently awaiting the results of tomorrow’s Federal Open Market Committee meeting. The surprisingly strong U.S. employment data suggests the FOMC will stick to Fed Chair Jerome Powell’s mantra that the "economy is in a good place." Interest rates are universally expected to remain unchanged at 1.75%. Furthermore, if the Fed believes that a Phase 1 trade deal announcement is imminent, the statement could be a tad hawkish, sparking a U.S. dollar rally. If so, the Canadian dollar would suffer.
There has been a slew of contradictory U.S./China trade news. A Chinese official said that Chinese imports of U.S. soybeans between September and November are 18 times higher than in the same period last year. Even better, China has issued new tariff-free import permits for soybeans for January. President Trump has been touting increased Chinese agricultural imports as a pathway to a trade deal, and it appears he is getting his way. In fact, on Monday, Trump said the U.S. is doing well with China with respect to a new deal, giving rise to expectations that the proposed December 15 tariff increase will be delayed.
However, the U.S. Congress may toss a wrench into the works. Members are reportedly readying a bill to ban the use of Federal funds to purchase Chinese railcars and buses. That news won’t make Chinese officials eager to sign a trade deal.
Canadian dollar losses may have been reduced because of the surge in oil prices. West Texas Intermediate (WTI) rose to $59.38/barrel overnight, mainly because of lingering demand from the Organization of the Petroleum Exporting Countries and Russian decision to increase oil production cuts. However, concerns around a more prolonged U.S./China trade dispute led to profit-taking selling and a drop to $58.59 U.S./barrel in early Toronto trading.
In Europe, EUR/USD jumped to $1.1084 from $1.1064 after German and European ZEW survey data was better than expected. German ZEW Economic Sentiment index surged to 10.7 from -2.1 in November, the highest level since February. The euro-zone result was similar. It was 11.2 compared to -1 in November. Prices inched lower in early Toronto trading as positions were adjusted ahead of the FOMC meeting Wednesday.
GBP/USD rose to $1.3188 from $1.3134 despite a series of soft economic reports. October Gross Domestic Product growth was flat. A dip in Industrial Production was offset by Manufacturing Production rising a tick better than forecast. However, traders only have eyes for the U.K. election, which happens on Thursday. The polls are predicting a majority for Boris Johnson’s Conservatives; however, others question the accuracy of the estimates due to a large number of "undecided" voters.
Today’s U.S. data will be a non-event for FX markets.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
