The Canadian dollar rallied ahead of and then after yesterday’s Federal Open Market Committee policy meeting statement. The FOMC left interest rates unchanged which was universally expected, as was the dovish policy statement. The Committee members are predicting that the Fed Funds rate will stay in the 1.50%-1.75% range for all of 2020.
They justified their decision by saying the "labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low." They did note some concerns, albeit mildly when they wrote: "Although household spending has been rising at a strong pace, business fixed investment and exports remain weak." The decision to leave rates unchanged was unanimous.
The dovish statement gave the green light to U.S. dollar bears and the greenback was sold against all the major G-10 currencies. However, the magnitude of the dollar’s losses may have been exaggerated because of the time of year. December is year-end for many global banks and international corporations. They are in the process of closing their books for the year, which sharply reduces FX liquidity.
FX price action was very quiet overnight due to three major concerns: 1) European Central Bank policy meeting and press conference today, 2) U.K. election, 3) proximity to December 15 when the U.S. has said it will raise Chinese tariffs by 15%.
Today’s ECB meeting should be a non-event. The ECB is expected to leave rates and guidance unchanged. The Swiss National Bank left interest rates unchanged at -0.75% at their policy meeting today. They said they would intervene in FX markets as required to protect the Swiss franc from unwarranted increases. They also noted that international trade tensions and political uncertainty were weighing on the global economy. The comments were not unexpected, and the FX reaction was muted.
It is election day in the U.K.. Prime Minister Boris Johnson is hoping to secure a majority government, and the latest polls suggest he may get one. However, U.K. polls have been notoriously inaccurate, and there are many "undecided" voters. A majority government is not a sure thing. The polls close at 22:00 GMT (17:00 EST). GBP/USD traded erratically in a 1.3150-1.3228 range today.
The U.S./China trade talks are a ticking time-bomb. President Trump delayed a planned 15% hike in tariffs on Chinese imports until December 15, in hopes of securing a Phase 1 trade deal. The deadline is fast approaching. Trump and his senior advisors are reportedly meeting today with some speculating that the tariffs will be implemented as planned. Officials from both sides claim that a deal is close although China’s demand that all tariffs be rolled back is supposedly the sticking point.
Canadian dollar traders will be hoping today for some clarity from Bank of Canada Governor Stephen Poloz’s lunch-hour speech.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
