Canadian dollar bulls are taking it on the chin. The sharp reversal in oil prices from their recent peak and positive U.S. sentiment around the U.S./China Phase 1 trade deal as fueled widespread U.S. dollar demand against the G-10 major currencies and the Canadian dollar is collateral damage.
Those losses are occurring despite improving domestic data and comments from Bank of Canada officials indicating an extended period of unchanged interest rates. Yesterday’s Bank of Canada Business Outlook Survey showed business sentiment ticked higher in the fourth quarter.
The indicator rose to its best level in a year, due in part to the improved U.S. and China trade dialogue. However, it wasn’t all peaches and cream. Sentiment around future business investment dipped. Nevertheless, the survey results suggest that the Bank of Canada will leave interest rates unchanged at the January 22 monetary policy meeting.
China was the big story in Asia overnight. Chinese data, speculation around U.S./China Phase 1 trade deal details, and an announcement from the U.S. Department of the Treasury hogged the limelight. Treasury Secretary Steven Mnuchin waited until just before the close of business yesterday to confirm earlier rumours that China was removed from the US Currency Manipulators list.
He also said "The Treasury Department has helped secure a significant Phase One agreement with China that will lead to greater economic growth and opportunity for American workers and businesses,” adding "China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability."
There wasn’t any shortage of news items providing details of the Phase 1 trade agreement, leaked by "unnamed sources." The South China Morning Post claims China committed to purchasing $200 billion of U.S. goods over two years. The purchase total includes $75 billion in manufactured goods, $50 billion in energy and $40 billion in agricultural products. The U.S. cancelled some tariffs and chopped tariffs on $120 billion worth of goods from 15% to 7%.
Those news items put a positive spin to the risk outlook in early Asia trading, which is when the Canadian dollar reached its overnight peak.
China’s released better than expected trade data which usually injects another dose of positive risk sentiment. Chinese exports rose 7.6% in December, easily beating the 3.2% that was forecast, but the news did not translate into fresh demand for the commodity bloc currencies. Instead, the U.S. dollar inched higher in Europe and early Toronto trading.
Today, U.S. December headline and core Consumer Price Index rose 2.3%, as expected.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
