The Canadian dollar is trading sideways. It bounced around in a narrow USD/CAD range of $1.3035-$1.3046 overnight, unable to garner any traction in either direction. There aren’t any top-tier domestic economic data available until next Wednesday when the Canadian inflation report is released. That is the same day the Bank of Canada holds its first monetary policy meeting of 2020.
That meeting is not expected to result in a change to the benchmark overnight interest rate, which sits at 1.75%. However, traders expect a more dovish, rather than hawkish, leaning statement after Monday’s Business Outlook Survey only showed a modest improvement in sentiment. The future sales growth forecasts suggest a slight increase ahead but not enough for the BoC to move the needle on rates.
The U.S. dollar closed yesterday on a mildly negative note and continued to trade that way overnight and into the Toronto open. FX traders are feeling a tad more optimistic about global economic growth now that the Phase 1 U.S./China trade agreement is signed and sealed. The shift into risk-seeking trades has been moderate, but that is because the critical details of the trade deal were leaked, so yesterday’s ceremony didn’t offer any surprises.
China agreed to almost all the U.S. demands. They will increase imports of U.S. products and services to $200 billion/year, which included boosting agricultural and seafood products to $80.billion over two years. They even agreed to stop the forced transfer of technology in return for market access. Also, although some existing tariffs are reduced, the rest will remain in effect until President Trump is satisfied with the implementation of Phase 1 and when Phase 2 talks start.
AUD/USD traders liked the news and prices cracked above 0.6920 resistance and opened the door to further gains to $0.6990. However, some of the U.S. export gains could come at the expense of Australia and New Zealand, which diminishes the benefit from improved risk sentiment for those currencies and may slow topside moves. The Canadian dollar is also in that boat.
USD/JPY is struggling to maintain upside momentum above 110.00. Positive risk sentiment from the U.S./China trade deal is offset by the drop in U.S. Treasury yields for the past week.
EUR/USD is probing resistance in the $1.1170 zone, bolstered by broad US dollar weakness and the drop in USD/CNY which has led to a drop in the trade-weighted euro, according to Soc Gen economists.
GBP/USD is riding the wave of broad dollar weakness. It added to yesterday's gains and is trading at a one-week high. Concerns that the Bank of England will cut rates at its January 30 meeting may limit gains.
FX markets have erased "trade tensions" from the agenda and are back focusing on economic data. There is plenty of that on tap today with U.S. Retail Sales being the major focus. They are expected to rise 0.4% in December. There isn’t any Canadian data available so the Canadian dollar will continue to track broad U.S. dollar moves.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
