Canadian Economic Fundamentals Light Until Friday Monthly GDP.
Monday 24 September, 2018
Daily Currency UpdateThe Canadian dollar moved within a 50-pip range on Monday between levels of 1.2910 and a high of 1.2955. We saw the release of Wholesale Trade which came in better than expected rise to $63.9 billion up 1.5% from a projected 0.4%. Sales in July climbed in four of seven subsectors, representing approximately 66% of total wholesale sales. Leading the gains were personal, and household goods: food, beverage and tobacco; and motor vehicle and parts subsectors led the gains in July, while the miscellaneous subsector posted the most significant decline. In volume terms, wholesale sales increased 1.2%.
The USD/CAD is holding above the 1.29 handle as market participants now seemed to hold back from placing any aggressive bets and prefer to wait for fresh updates on the North American Free Trade Agreement (NAFTA).
Oil continues to trade at the top of its range as traders continue to be bullish on crude. There is a cautious undertone as oil analysts see sufficient supply of oil over the next 12 months also cited is that any downside risk to demand form the trade war between China and the United States has not been fully priced in.
Key MoversThe Federal Open Market Committee is overwhelmingly expected to hike rates to 2.25%. However, the accompanying statement/press conference will be scrutinized for clues as to whether we will see another move in the following quarter and what path policy will take next year.
US President, Donald Trump signed is Scheduled to speak to the United Nations General Assembly today at 10:15 am EST. The speech will likely focus on Iran and sanctions imposed on them do to their nuclear program. The European Union has introduced a mechanism the will allow European companies based in Iran to continue to do business inside the country sidestepping the U.S sanctions.
The Greenback is stronger this morning on a bout of risk aversion on news that China and the United States appear to be preparing for a long and extended trade war. US bond yields continued to push higher ahead of the US Fed’s rates announcement on Wednesday night, with benchmark US 10-year yields rising to 3.09%. The Dow also close the North American session in the red at 26,562.05 -181.45 (-0.68%). US Equity Futures are pointing to a positive open this morning with all the indices in the green.
The Euro continues to challenge the 1.18 mark against the Greenback with a hawkish ECB statement driving the momentum. In what has been a quiet start to the week, the Euro did enjoy some relevant news with ECB Chair Draghi speaking at a European Parliament committee meeting yesterday. Draghi mostly repeated much of the same message he said at the last press conference but added there was a “relatively vigorous” uptick in underlying inflation. The positive comment saw the Euro move above the 1.18 level although it failed to hold its gains.
On the trade front, Reuters reported that the EU’s Trade Commissioner Cecilia Malmstrom had cooled expectations on any rapid progress in the US-EU trade negotiations. She noted that the dialogue between the two economies is still in the “exploratory” phase, signaling any detailed progress would be at the trade meeting slated for early November.
Moving into Tuesday, the Euro enjoys another quiet day on the economic calendar with only a Consumer Confidence reading in the US to drive direction.
The sterling bounced overnight, recouping 0.7% against the greenback to touch 1.3167 while also rising 0.3% against the euro. The movements came as traders began to unwind their short pound positions following comments from Brexit secretary Dominic Raab reflecting his confidence a deal with the European Union would eventually be struck. The moves ensured the pound was the best performing currencies when benchmarked against its G10 peers, impressive given Fridays 1.5% decline.
Risks are still skewed to the downside with the pound looking vulnerable as Brexit negotiations continue to roll on and Prime minister May’s leadership coming under increasing pressure. Key political events to watch for this week are the conservative annual conference and the opposition Labour party’s vote this week on whether to retain a second Brexit referendum as an option if May’s plan fails.
We only have second-tier housing to watch out for through Tuesday and Wednesday with the GBP/USD likely to take its cues from FED commentary surrounding their monetary policy stance and US Q2 GDP due Thursday. Thursday also sees ECB president Draghi and BOE Governor Carney deliver speeches before we get UK Q2 GDP and current account metrics on Friday.
The Australian Dollar opens this morning gapping lower against the Greenback at 0.7253 after having a stellar run the week prior. The AUD/USD pair failed to hold onto the high 72’s and with the domestic docket unable to offer any support the Aussie was sold off through the Asian session touching a low of 0.7236. As we entered the European session, the AUD/USD quickly regained power and climbed up towards 0.7278 however, the move was short-lived and once again risk was off the table and the Aussie pulled back down to 0.7250.
The local economic calendar is light today, in fact, we have nothing due until Friday, so it is likely the Aussie will be primarily driven by US dollar action, and with the Fed set to deliver another interest rate hike this week, the Aussie could test the low 72’s.
The New Zealand Dollar retested the US 67 cent handle in the NA trading hours despite a quiet trading session and the lack of any data to start the week. With both Japan and China observing public holidays, liquidity was dampened with the Kiwi trading in a tight 20-point range for the majority of the day.
The NZD/USD eventual moved lower as it was unable to breach 0.67, reaching highs of 0.6687 and drifting to lows this morning of 0.6631 following a bounce in the greenback after the implementation of tariffs on Chinese goods.
Market Participants look toward tomorrows Trade Balance and ANZ Business Confidence levels whereby last month households were upbeat about current conditions for the broader economy.
- USD/CAD: 1.2946 - 1.2987 ▲
- CAD/EUR: 0.6542 - 0.6575 ▼
- CAD/GBP: 0.5857 - 0.5895 ▼
- CAD/AUD: 1.0630 - 1.0660 ▼
- CAD/NZD: 1.1592 - 1.1637 ▼