- Rumours of Trudeau quitting fuel Canadian dollar demand.
- China acts to support CNY.
- US dollar starts first full week of trading in retreat.
USDCAD: open 1.4373, overnight range 1.4359-1.4451, close 1.4448, WTI $73.92, Gold, $2634.45
The Canadian dollar has caught a bid. Broad-based US dollar selling pressure combined with rumours that Canadian Prime Minister Justin Trudeau will resign today or sometime this week has rejuvenated the Loonie.
Mr. Trump threatened to put a 25% tariff on all imports from Canada. The threat may just be a negotiating tactic, but Trump’s open disdain for Trudeau suggests Canada would come out second best in any trade deal.
The Canadian economy is barely treading water and a US/Canada trade war would tip it into a recession. Traders and global investors are hoping that a new government will repair the damage.
However, that is long term. In the short term, CAD/US interest rate differentials are limiting Canadian dollar gains. The 10-year CAD/US yield spread is -131.5 bps.
There are no actionable Canadian or US economic reports today.
EURUSD traded with a bullish bias in a 1.0295-1.0433 range. German and Eurozone Services PMI data came in slightly above expectations, but the results were ignored. The overnight gains are likely due to profit-taking as the longer-term outlook suggests a drop to 1.0000 is likely.
GBPUSD climbed in a 1.2414 to 1.2548 band, despite weaker-than-expected UK Services PMI results. December PMI came in at 51.1 compared to the forecast of 51.4. A report from the British Chamber of Commerce, indicating that more than half of businesses plan to raise prices due to rising taxes and costs, may have contributed to the gains. This development could complicate expectations for a Bank of England rate cut in February.
USDJPY chopped about in a 157.17 to 157.97 band, supported by firm US Treasury yields. Comments from Bank of Japan Governor Ueda about the possibility of rate hikes, albeit with uncertain timing, had little impact on market sentiment.
The Australian dollar rallied from 0.6207 to 0.6289, buoyed by broad US dollar weakness and a stronger-than-expected yuan fixing by China’s central bank. Additional support came from a modest rise in iron ore prices.
