Home Daily Commentaries Commodity-Based Currencies Gain on Chinese Central Bank Stimulus Plan.

Commodity-Based Currencies Gain on Chinese Central Bank Stimulus Plan.

Daily Currency Update

The USDCAD continued trading within the short-term range of the last sessions, but the CAD managed to close 0.12% stronger versus the USD at 1.3155.

The USD ended the day relatively unchanged versus a basket of major currencies, but commodities and resource-based currencies performed well against the USD amid China’s fiscal stimulus plan. The PBOC also mentioned measures to ease monetary policy and ramp up fiscal policy. China did fall short of announcing a big stimulus package, but nevertheless, the direction was clear, and the market responded accordingly. Chinese equities were boosted by approximately 5% since Friday with commodity prices also benefiting.

With a very light week on the economic data front for Canada, market participants are paying close attention to resuming NAFTA negotiations. Foreign Affairs Minister Chrystina Freeland is in Mexico meeting with outgoing and incoming counterparts after talks were stalled for the July 1st Mexican Presidential elections. Trump has threatened to scrap NAFTA and put together singular deals for Canada and Mexico, also saying that he would prioritize a Mexican agreement first.

Key Movers

Risk sentiment took another twist in overnight trading with the market responding actively to rebounds in commodity markets and equities in China. The risk-on environment led to a marginal softening of the Greenback with the US Dollar Index now treading water at 94.61, a measly 0.02% lower. Ultimately, however, commodity currencies are higher against the United States Dollar with most other majors remaining relatively flat.

President of the European Commission Jean-Claude Junker and EU Trade Commissioner Cecilia Malmstrom will meet with President Trump in Washington today. A bilateral agreement between the EU and the U.S. on trade is the agenda. Trump did tweet last night that both sides should eliminate all tariffs. Market participants see the tweet complicating the negotiations as neither side is at that point on resolving the fight over tariffs.

As mentioned earlier, tomorrow sees the latest ECB interest rate decision with no change all but guaranteed from the Governing Council. It’s unlikely there will be any hints with regards to the timing of future rate hikes other than they will occur mid-2019. As we approach August things will likely quieten down as they generally do over the holiday period however there is always Donald Trump to keep people on their toes! This morning’s one print of note has been a slightly better than expected German IFO Business Climate survey which came in at 101.7 rather than 101.6 predicted. The survey has taken a big leg down of late printing 114.7 in March before dropping to 102.1 in April as Trump-fueled trade concerns weigh on German business sentiment. GBP/EUR is a little higher currently trading around 1.1245.

Sterling has continued to rally throughout the past 24 hours following last week’s drop below 1.30 against the dollar. With a lack of fundamental data this week from the UK, traders may be eyeing up next week’s interest rate decision from the Bank of England and starting to price in a hike. Another small crumb of comfort may report that UK PM, Theresa May is set to take charge of Brexit negotiations going forward. With former Brexit Secretary, David Davis resigning in the wake of the new plan for future trade/customs being revealed it appears the PM will be taking a more assertive role alongside new Brexit Secretary, Dominic Raab. We could see a (very) limited recovery in sterling over the next six weeks as parliament has its summer break and Brexit news thins out a little however we are now only three months before a future trade/customs plan is meant to have been thrashed out by so it could just be a temporary reprieve. GBP/USD is back above 1.3150.

The Australian Dollar throughout Tuesday’s Asian session remained under pressure and stayed below 74c on the back of renewed US Dollar buying interest. However, an advance in both Copper and Zinc prices both up more than 2% pushed the AUD/USD pair through short-term resistance touching an eventual high of 0.7434 in the early hours of New York. The Aussie led the advance in the G10 currencies and performed the best moving from a low of 0.7360 to a high of 0.7434.

With no significant data releases yesterday, investors remained mindful of Trump's displeasure over the Fed's monetary tightening claiming that their plans to raise U.S. interest rates risked undermining his efforts at strengthening the economy.

All eyes will be focused today on Consumer Price Index (CPI) figures which should freshen the debate as to when the RBA is likely to raise rates again. The headline reading for inflation is expected to pick up in the second-quarter of 2018. Markets are waiting to see a small jump from 0.4% to 0.5% q/q and 2.3% y/y. This would put the inflation rate back within the confines of the RBA’s 2% to 3% target band.

The New Zealand dollar pushed back through 0.68 U. S. cents as risk appetite gained broader traction on news China will support easing monetary policy and increase fiscal stimulus into the end of the year. Equities have rebounded some 5% since Friday’s close, and the yuan stabilized above 13-month lows allowing the Kiwi to shrug off yesterday’s softening and push back toward resistance at 0.6820.

While one of the day’s top outperformers the Kiwi still struggled to push through key technical stops and faltered on approaches nearing 0.6820. Much like its antipodean counterpart the NZD appears largely range bound constrained by broader global trends and longer-term expectations of neutral monetary policy.

With support at 0.67-0.6720 attentions turn to June's trade balance print today for short-term guidance. Anything short of a $200million surplus could put pressure on the Kiwi and prompt a shift back below 0.68.

Expected Ranges

  • USD/CAD: 1.3071 - 1.3157 ▼
  • CAD/EUR: 0.6502 - 0.6528 ▲
  • CAD/GBP: 0.5775 - 0.5803 ▲
  • CAD/AUD: 1.0219 - 1.0290 ▲
  • CAD/NZD: 1.1165 - 1.1214 ▲