The Canadian dollar rode the coat-tails of U.S. dollar sentiment in a choppy, but thin overnight session. Holiday’s in Japan and China greatly reduced liquidity in Asia, which exacerbated US dollar gains at the open.
U.S. President Trump appears to be using his 2016 election playbook, with threats of tariffs on China the theme. He described tariffs as "the greatest negotiating tool that we have ever devised that we never use." Yesterday, he threatened to scrap the U.S./China Phase 1 Trade deal, unless China follows through and buys $200 million of US products. He said "They took advantage of our country. Now they have to buy and, if they don’t buy, we will terminate the deal. Very simple."
The U.S. dollar gapped higher on the news when Asia opened. AUD/USD dropped from $0.6417 to $0.6374 while NZD/USD fell to $0.6011 from $0.6062. The move was short-lived. Prices rebounded steadily with AUD/USD trading at $0.6420, and NZDUSD at $0.6046 in Toronto.
The easing of CVOID-19 lockdown restrictions in both countries underpinned prices. New Zealand Prime Minister Jacinda Ardern and Australian Prime Minister Scott Morrison are discussing a "trans-Tasman travel bubble," because as NZ Foreign Minister Winston Peters said, both countries were "beating the crap" out of the coronavirus.
USD/JPY dropped at the Asia open and then quickly recovered, although with China and Japan closed, trading volumes were light. Broad U.S. dollar strength weighed on the currency pair while hopes of an economic rebound from worldwide easing of lockdown restrictions, supported prices.
EUR/USD dropped when Asia opened, and never recovered. A German court will be ruling on the legality of recent European Central Bank actions, which has raised some concerns. Also, prices were depressed due to weak Eurozone April Manufacturing Purchasing Managers Index data, which dipped to 33.4 from 33.6 previously. The technical picture is modestly bullish while prices are above 1.0930.
GBP/USD fell to $1.2407 from $1.2493 on safe-haven demand for U.S. dollars, after Trump’s trade tirade but have since climbed to $1.2450 in Toronto. Bearish GBP/USD sentiment from the ongoing U.K./E.U. trade discussions is tempered by improved risk sentiment as COVID-19 restrictions get pared back.
The Canadian dollar recouped all of its overnight losses, and then some, in early Toronto trading. USD/CAD climbed to $1.4151 in Asia and dropped to $1.4063 in Toronto trading, alongside improving risk sentiment. Trump’s tariff threat may be election posturing, and traders are hopeful of a steep economic recovery as the American economy starts to reopen.
There are not any notable Canadian or U.S. economic reports available today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
