The Canadian dollar decline stalled. USD/CAD tested resistance at $1.3300, and it held, leading to a retreat toward intraday support. The Canadian dollar price action mirrored that of the Australian and New Zealand dollars as the commodity currency bloc was unable to get any traction despite a positive shift to global risk sentiment.
China announced that it planned to slash tariffs on $75 billion of U.S. imports, by 50%, effective February 14. A 10% tariff is cut to 5% while a 5% tariff is trimmed to 2.5%. The move is a deliberate attempt by Chinese authorities to counter claims that the coronavirus outbreak would delay its implementation of the Phase 1 trade agreement. The Ministry of Finance said in a statement "China hopes both sides can follow what has been agreed in the deal and make efforts to implement relevant parts of the deal to boost market confidence, to promote bilateral relations, and to help world economic growth."
Equity traders jumped all over the news. The major equity indexes in Asia soared, with Japan’s Nikkei 225 rising 2.4%. European indexes also rallied but not with the same enthusiasm. FX markets were rather blasé. The Japanese yen and Swiss franc barely budged and opened in Toronto this morning, unchanged from where they closed on Wednesday.
EUR/USD traded in a very tight range. Traders are ignoring eurozone developments and are content to sit on the sidelines until Friday’s U.S. non-farm payrolls data is released. Wednesday’s ADP employment report surprised to the upside, posting a gain of 291,000 jobs compared to the forecast for a gain of 156,000. That news led some traders to expect a similar surprise in the NFP data, although the evidence suggests that ADP is a poor indicator of NFP.
EUR/USD traders ignored weak German factory orders data and a speech by European Central Bank President Christine Lagarde. She said that the low-interest rate/low inflation environment would hamper the ECB’s ability to respond to an economic downturn.
GBP/USD traded quietly in Asia and then got spanked in Europe. Prices dropped from $1.2997 to $1.2953 in early Toronto trading after Bloomberg reported that the EU planned to make it harder for U.K. based financial firms to do business in the eurozone. They want to make conditions so onerous, that banks will have to relocate from London to eurozone cities.
USDJPY consolidated yesterday’s gains overnight, supported by China’s tariff reduction announcement but gains were capped by a halt in the recent U.S. Treasury yield rally.
The U.S. and Canadian economic calendars are light, leaving FX markets and the Canadian dollar to drift aimlessly ahead of Friday’s U.S. and Canadian employment reports.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
