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NAFTA continues to elevate market risk for the Loonie.

Jeffrey Scott

The CAD is trading higher against the USD this morning on broader USD weakness. US/China trade policy along with NAFTA continues to elevate market risk for the Loonie. Domestic risk this week will be Tuesday’s manufacturing sales data and Friday’s retail sales & CPI data release.

The USD is trading softer against its G10 counterparts today on light volume trading. Reports over the weekend indicating that President Trump has instructed his administration to proceed with an additional USD 200bn in tariffs on Chinese good is keeping the USD under pressure. On the data front, US Empire State Manufacturing Index came in under forecast at 19 which is down from the previous figure of 25.6.

The ECB recently reaffirmed their plans to reduce its asset purchase programme to €15 billion per month in the last quarter of the year, finalising the unprecedented programme by the end of the year. There was good news out of Italy this morning as a report apparently from Italian Finance minister Giovanni Tria that the budget deficit from the upcoming budget will be around 1.6%, below the ECB’s ceiling of 2%. This has seen a mini rally in Italian bonds and it may seem that for the time being at least the risks out of Italy are off the table.

In terms of economic fundamentals, Eurozone CPI on headline and core released as expected at 1.0% and 2.0% respectively. Wednesday marks the start of meetings amongst EU leaders and Brexit is set to be one of the topics of conversation with Michel Barnier expected to be granted more flexibility.

The party conference season has kicked off with the Liberal Democrats and Vince Cable getting things rolling. This is the first conference of many with both the Tory Party and Labour Party expected to create headlines and fireworks. Normally conference season passes without too much attention, however with the Conservative government having a minority within Parliament and Brexit plans being examined constantly this season could cause some volatility for the pound. Not wishing to miss out on all this upcoming drama, London Mayor Sadiq Khan called for a second referendum over the weekend on the outcome of the Brexit deal. Expect more of this over the coming weeks as well Boris Johnson’s possible leadership bid.

In the meantime UK inflation is released this week which could cement the Bank of England’s position on interest rate hikes. For a next hike in 2019 inflation will have to consolidate around the 2% mark, the Bank of England’s target, if wage growth is still subdued.

Tuesday will mark the first set of minutes from the RBA since Westpac decided to raise the rates on their variable mortgages, something that caused a selloff in the Aussie Dollar. Tuesday will hopefully reveal the central bank’s outlook although they may now be less willing to raise rates over the next 12 months.

GDP data is set to be released for New Zealand on Wednesday. But with quarterly growth missing expectations four out of eight times since September 2016 the risks to the New Zealand dollar continue to be to the down side.