Home Daily Commentaries The Canadian Dollar had a very good day on Tuesday.

The Canadian Dollar had a very good day on Tuesday.

Daily Currency Update

The Canadian Dollar had a very good day on Tuesday. It was steady against the well-bid Antipodean currencies and up against both the EUR and GBP even before the story broke about a possible NAFTA deal. By the North American afternoon, USD/CAD was on a 1.27 handle for the first time in almost a week and the CAD had gained 0.8% against the GBP and 1.2% against a very soft EUR to be at the top of our one-day performance table. Overnight in Asia, USD/CAD moved down to 1.2775; its lowest level since February 28th, before the China news on tariffs and a renewed plunge in equity index futures took the pair back up to 1.2825.

We noted here yesterday the Bloomberg story which claimed, “The Trump administration is pushing for a preliminary NAFTA deal to announce at a summit in Peru next week, and will host cabinet ministers in Washington to try to achieve a breakthrough, according to three people familiar with the talks.” According to Global News this morning, “a spokesman for Foreign Affairs Minister Chrystia Freeland, would not comment on reports from Washington about a potential deal-in-principle other than to say, “Canada is committed to concluding a modern, mutually beneficial NAFTA as soon as possible.” Freeland is expected to travel to Washington at the end of this week for one-on-one meetings with U.S. Trade Representative Robert Lighthizer. CBC News, meantime, quotes a senior anonymous source suggesting an agreement-in-principle could be reached in the coming weeks.
"Americans are being more positive, more constructive than they have been in the last eight months," the source said. "Canada is quite prepared to roll up its sleeves to get something done, but Canada won't roll over."

Away from NAFTA and back on the economy, we should note the Canadian manufacturing PMI index earlier this week rose slightly to 55.7; its 25th consecutive month above 50. Markit said, “The headline PMI reading in March was supported by a robust and accelerated rise in production volumes across the manufacturing sector… with sustained pressure on operating capacity as highlighted by another solid rise in backlogs of work. A number of survey respondents noted that sales growth had outstripped production capacity at their plants in recent months.” The next focus on data will be the Canadian employment report on Friday, published at the same time as the US jobs report. The Canadian Dollar opens in North America at USD/CAD1.2825, AUD/CAD0.9845 and GBP/CAD1.8000.

Key Movers

The extreme volatility in equity markets continues. After a 600 point drop for the DJIA on Monday, Tuesday brought a 400 point rally and this morning in Europe all of yesterday’s gains have been wiped out with a 550 point fall for the DJIA and almost 50 points off the S&P 500 index. The US Dollar had a fairly good day on Tuesday despite the rally in equity markets, though this was more a reflection of a sharp fall in the EUR/USD exchange rate than a more broadly-based USD rally. Its index against a basket of major currencies rose to a best level of 89.85 before slipping back a little into the New York close. In Europe this morning, the US index has traded between 89.55 and 89.80 and opens in North America around 89.70.

The Trump administration yesterday imposed 25% tariffs on some 1,300 industrial technology, transport and medical products to try to force changes in Beijing’s intellectual property practices. “This level is appropriate both in light of the estimated harm to the U.S. economy, and to obtain elimination of China’s harmful acts, policies, and practices,” the U.S. Trade Representative’s office said in a report. In addition to advanced technologies such as communication satellites, the list includes products ranging from various types of steel to television components, medical devices, dishwashers, snow blowers and flame throwers. China’s Ministry of Commerce condemned the US decision. “Disregarding strong representations by China, the United States announced the tariff proposals that are completely unfounded, a typical unilateralist and protectionist practice that China strongly condemns and firmly opposes,” the Ministry said in a statement overnight. “We have the confidence and ability to respond to any US trade protectionist measures… As the Chinese saying goes, it is only polite to reciprocate.” Within hours, China announced 25% tariffs on 106 US products. The list includes soybeans, chemicals, whisky, cigars, some types of beef, corn and wheat. Some types of aircraft, lubricants, tobacco and orange juice are also targeted, along with some trucks and SUVs.

After a lull in the US economic data calendar yesterday, it’s a pretty packed programme today. First up is the ADP employment survey for which consensus looks for a 200k monthly gain after a 235k increase in February which will surely be revised higher to bring it more into line with the actual outturn last month of 313k. later in the afternoon we have both versions of the non-manufacturing activity survey (PMI and ISM) and the February durable goods report. As we digest all that lot, the St. Louis Fed’s President James Bullard – one of the main doves on the FOMC - is scheduled to give a speech on the US economy and monetary policy whilst Cleveland Fed’s Loretta Mester will also be on the newswires. The Atlanta Fed yesterday upgraded its forecast for Q1 GDP from 2.4% to 2.8% after the ISM manufacturing and constructions spending numbers were released. The non-manufacturing ISM report isn’t an input to its GDP calculation and the next update will come on Thursday after the international trade data is published. The USD index opens this morning in North America around 89.70.

The Single European Currency had a bad day on Tuesday, falling against every one of the major currencies we follow closely here and in bottom spot by quite a clear margin. Early in the European morning, EUR/USD had reached a high just above 1.2330 but it was then hit by softer than expected economic data and fell almost three-quarters of a cent to a low just below 1.2260; its lowest level in almost a week. Overall, its losses ranged from 0.3% against the USD to 0.6% against the AUD and 1.2% versus the Canadian Dollar. After a quiet session in Asia, news of China’s retaliation of tariffs pushed the EUR up to a high of USD1.2305 this morning but it has subsequently slipped back in to the high 1.22’s.

In economic news, headline annual inflation in the Eurozone rose to 1.4% in March from a downwardly-revised 1.1% in February, in line with the consensus. The core rate was unchanged at 1.0%, below the consensus, 1.1%. Looking at the main components of euro area inflation in this ‘flash estimate’, food, alcohol & tobacco is expected to have the highest annual rate in March (2.2%, compared with 1.0% in February), followed by energy (2.0%, compared with 2.1% in February), services (1.5%, compared with 1.3% in February) and non-energy industrial goods (0.2%, compared with 0.6% in February).

Separate figures from Eurostat showed the Eurozone unemployment rate was 8.5% in February 2018, down from 8.6% in January 2018 and from 9.5% in February 2017. This is the lowest rate recorded in the euro area since December 2008. The broader EU28 unemployment rate was 7.1% in February 2018, down from 7.2% in January 2018 and from 8.0% in February 2017. This is the lowest rate recorded in the EU28 since September 2008. Among the Member States, the lowest unemployment rates in February 2018 were recorded in the Czech Republic (2.4%), Germany and Malta (both 3.5%) as well as Hungary (3.7% in January 2018). The highest unemployment rates were observed in Greece (20.8% in December 2017) and Spain (16.1%). The EUR opens in North America today at USD1.2280 and EUR/CAD1.5750.

The British Pound had a pretty mixed performance on Tuesday, down against all three of the major ‘Commonwealth currencies’ but up against both the euro and US Dollar. The GBP/USD pair struggled to get traction in either direction. Having been up to a high around 1.4085 early in the European morning, it then quickly lost half a cent and had three further reversals of at least a quarter of a cent all within a range from 1.4025 to 1.4085 before ending almost exactly at the mid-point. Overnight in Asia, the pound broke above the top of its range against the USD but then slipped back on another set of softer than expected economic data.

In economic news, the UK manufacturing sector maintained a steady pace of expansion during March. The IHS Markit/CIPS PMI (to give the index its’ full name) posted 55.1 in March, little-changed from 55.0 in February. The average reading over the opening quarter as a whole (55.1) was the weakest in a year, suggesting that the underlying pace of expansion has been generally slower since the start 2018. IHS Markit, which compiles the report said, “The latest PMI survey provided further evidence that UK manufacturing has entered a softer growth phase so far this year. Although the pace of output expansion ticked higher in March, which is especially encouraging given the heavy snowfall during the month, this was offset by slower increases in new orders and employment. Average rates of increase over the opening quarter as a whole are also down noticeably from the growth spurt seen at the end of 2017. Compared to official data, the performance through quarter one is consistent with only a 0.4-0.5% gain in production volumes, a considerable slide from the fourth quarter’s 1.3% increase.”

We’ve been warning here about weather disruptions and the knock-on effect on retail sales and GDP. Commenting on todays survey, CIPS said, “It’s a few years since the UK experienced such bad weather in March and it’s obvious that supply chains were woefully unprepared to deal with the disruption. So though March’s figures could be viewed as a temporary blip, without a strong pipeline of work, and strong risk strategies in place, the sector’s health remains in question as we’re still a long way off seeing it operate the way it has over the last year.” The British Pound opens in North America this morning at USD1.4035, GBP/EUR1.1430 and GBP/CAD1.8000.

The Australian Dollar had a fairly good day on Tuesday, not all of which was solely down to a recovery in US equity markets. A glimmer of hope for the rate bulls in the RBA Statement helped begin a short squeeze which took the pair all the way up to a high of 0.7705 but it couldn’t sustain this level and slipped back to the 0.7685 area. This morning in Asia and early in London, some better than expected retail sales data helped lift AUD/USD to 0.7715 but it has subsequently fallen almost half a cent on fears (whether justified or not) that a tariff war between the US and China might adversely affect Australia’s growth prospects.

Incoming economic data this morning were a touch stronger than had been expected. Retail sales rose 0.6% during the month of February after an upwardly-revised +0.2% gain in January. Household Goods and Clothing & Footwear both rose 1.1% in the month, Cafes, Restaurants and Takeaway Food rose 0.7%, while Food Retailing and the catch-all Other Retailing rose 0.3% and 0.2% in the month. A strong increase in the number of people in employment over the last year will have helped boost spending levels though what matters more for the RBA is growth in wages and prices rather than employment and output.

In separate data, building permits fell by 6.2% to 18,700 in February though much of the decline came in the highly volatile apartment sector where permits were down more than 16% over the month following a more than 40% surge in January. In more stable trend terms that smooth out the monthly volatility, apartment approvals have been heading lower for the past five months. The value of all building approved in February rose 4.3%, with a surge in non-residential building (+22.6%) more than outweighing the decline in value of residential construction (-4.3%). The Australian Dollar opens in North America this morning at USD0.7675, with AUD/NZD at 1.0540 and AUD/CAD0.9845.

Early on Tuesday morning, NZD/USD briefly dipped below 72 cents before snapping back sharply to a best level of 0.7270 and as North American traders arrived at work, it was up against all the major currencies we follow closely here. By the end of the day, the Kiwi had been pushed into second place by a buoyant Canadian Dollar. Overnight in Asia and this morning in Europe, the NZD has had another push higher with NZD/USD reaching a best level of 0.7295 and NZD/CAD gaining around half a cent to 0.9340.

Figures out this morning showed New Zealand consumer confidence lifted slightly in March, continuing to recover from last year's weakness as house price growth expectations rose. The ANZ Roy Morgan consumer confidence index rose to 128 in March from 127.7 in February. The current conditions index rose 0.4 points to 127.7 while the future conditions index gained 0.2 points to 128.2. The analysts at ANZ noted, "Consumer confidence remains high. And why not? Jobs are plentiful, there’s talk of higher wages, and the Auckland housing market has found a floor… The strong labour market is supporting household incomes and various government policies are intended to provide a further boost, while at the same time strong commodity prices are boosting exporter incomes. With household debt already at a record high as a proportion of incomes, a steady-as-she-goes housing market is just the ticket.”

There are no official economic numbers scheduled for release in New Zealand this week, though tomorrow we get to see the QV house price data and ANZ job advertisements. The New Zealand Dollar opens in North America today at USD0.7280 and NZD/CAD0.9340.

Expected Ranges

  • USD/CAD: 1.2775 - 1.2880 ▼
  • CAD/EUR: 0.6285 - 0.6380 ▼
  • CAD/GBP: 0.5510 - 0.5570 ▲
  • CAD/AUD: 1.0075 - 1.0205 ▲
  • CAD/NZD: 1.0625 - 1.0775 ▲