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Trade day for the US and Canada.

By Hamish Muress

Politicians sometimes have a knack of unwinding all of hard work they have done in one short interview. It was the turn of Michel Barnier appearing a day after his very consolatory comments, but this time the tone was much more considered. Barnier stated that the EU would be prepared for all options with the UK and that a ‘no deal’ Brexit is part of this planning. The pound wobbled but in general it has managed to hold onto its gains made earlier in the week. August was meant to be a quiet month for the currency markets and the pound was bereft of any data for the last couple of weeks. GBP/USD and GBP/EUR have swung over 3.3% and 2.1% respectively over the last four weeks however with September just around the corner, the return of liquidity (following Labor Day) and the return of concrete data for investors to dig their teeth into volatility could increase.

There’s been a lot of arguments to suggest that the selloff in the USD was coming to an end and yesterday was proof of the dollar return. Whilst it wasn’t a rally by any means a number of USD linked currency pairs came under pressure. Emerging market currencies suffered from this as well as worries about Argentina which finds itself in a lot of trouble. US consumer spending rose for July which is vital as the consumer spending contributes more than 60% to the US economy. Today is a big day for the new NAFTA deal as well as Canada is expected to agree to the new deal. However Trump threatened yesterday that he was willing to pull the US out of the WTO whilst rejecting a trade deal from the EU on car levies. This trade rhetoric can often add strength to the USD.

The pressure from the dollar could also weigh on the Euro and the Euro will not find any favours from the situation in Italy. The cost to Italy for its latest bond auction hit a fresh four year high yesterday as investor confidence wanes around the future growth prospects in the country. As mentioned previously, Italy contributes extensively to Europe and as the coalition government pushes the boundaries on its 2019 budget there are concerns that debt levels will balloon.

The Aussie dollar is testing almost eight week lows against the pound as we finish the week. The thought was that Private Capital Expenditure would beat expectations however it didn’t even get close indicating a slowdown in business investment. To add to the problems the number of building approvals also dropped.

Canadian GDP slipped back yesterday and annual growth now sits around 2.4%. Whilst these growth levels are still very positive the main outcome from yesterday is that it means the Bank of Canada’s interest rate meeting next week is much more straightforward. There had been a small hope that the Bank could raise interest rates however this has now faded. Despite this though the BoC meeting will be the highlight for next week. The question in the meantime will be if Canada has signed up to the new US-Mexico trade agreement.

The Kiwi was yesterday’s worst performing currency as a direct result of the disappointing business confidence. The government has made efforts recently to try and kick-start business growth in the country to little effect however.