The Canadian dollar peaked early in Asia, and since then it has been on a one-way street lower. USD/CAD found a bottom at $1.3530 and is currently probing resistance in the $1.3580 area, in early Toronto trading. Canadian dollar selling pressure stems from concerns about a new trade war with the United States. Deputy U.S. Trade Representative Jeffery Gerrish told Kirsten Hillman, Canadian Ambassador to the U.S., that Canada had until July 1 to agree to export control measures or face tariffs.
The United States Mexico Canada Agreement (USMCA) on free trade was only just ratified last December. Are these tariff threats a sign of desperation in the Trump re-election campaign? It certainly smells like it, especially considering that the U.S. is also threatening the European Union, and United Kingdom with tariffs, as well.
There is also the odour of risk aversion sentiment wafting in the breeze. Traders are becoming alarmed at the rising number of new U.S. COVID-19 cases.
California, Arizona, and five other states are reporting record-high numbers of new cases requiring hospitalization.
However, the negative risk sentiment was tempered by comments from U.S. Treasury Secretary Steven Mnuchin. He said the Trump administration is discussing a new, targeted fiscal stimulus package, focused on creating and bringing back jobs.
Canadian dollar weakness is partially blamed on collateral damage following the reaction to the Reserve Bank of New Zealand policy decision. The RBNZ left interest rates unchanged which was almost universally expected. The policy statement was a tad dovish suggesting that economic risks were still skewed to the downside. The surprise was the news that officials were considering expanding the Large Scale Asset Purchase (LSAP)program to include foreign assets. NZD/USD was sold aggressively with prices falling from $0.6512 to $0.6425.
EURUSD attempted to rally during the European session after the German IFO Business Climate Survey greatly exceeded expectations. The IFO statement said "The IFO Business Climate Index rose from 79.7 points (seasonally adjusted) in May to 86.2 points in June. This is the strongest increase ever recorded." EURUSD peaked at 1.1325 and drifted down to 1.1290 in Toronto trading, due to the U.S. tariff threat.
GBP/USD was knocked off its lofty overnight perch, falling from $1.2542 back to $1.2495 in Toronto. Falling U.K. equities and U.S. tariff threats weighed on the currency.
The Canadian and U.S. economic calendars are empty in the case of the former, and second tier, for the latter. Today’s trading focus will be on Wall Street, COVID-19 news, and trade threats.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
