Europe responded Friday to Trump’s earlier tariffs on aluminum and steel, by imposing tariffs on $3.3 billion of American products. Global equity markets have fallen, the S&P 500 Index has effectively wiped out any gains for 2018, other indices are showing the same pattern.
The Canadian dollar is off slightly, oil prices that had held up the CAD Friday, are off this morning, analysts are still sifting through OPEC’s and Russia’s agreement to boost oil production, some analysts believe that we have seen the top in prices and that we will have $50 USD per barrel in the near future. Time will tell.
USDCAD 1.3305, 1.3280, 1.3267 1.3335, 1.3383, 1.3400
USD-CAD has settled lower after surging on Friday following the release of much weaker than expected retail sales and cooler than anticipated CPI data out of Canada. Friday’s 4%-plus surge in oil prices help generate some demand-from-lows for the Canadian dollar. USD-CAD posted a one-year high of 1.3384 and has subsequently settled in the mid-to-upper 1.3200s. Support comes in at 1.3227-30. In Canada this week, BoC events dominate the docket this week, including a speech by Governor Poloz (Wednesday), which will be the final outing for a BoC official ahead of the July 11 rate announcement. An economy running near potential, 2% CPI and a 40-year low jobless rate are consistent with the Bank delivering on the signals from the May announcement and progress report that pointed to a rate hike. But recent data has undershot expectations. We still expect a 25bp hike next month, though with a weakened conviction. Another rate hike is pencilled in this year (we expect October) but uncertainty over NAFTA further clouds the policy outlook past July. Overall, we retain a bullish view of USD-CAD.
EUR-USD has continued to hold a choppy range, largely unaffected by sub-forecast Ifo survey data out of Germany. The pair has so far remained with Friday’s 1.1608 – 1.1675 range. The dollar, after generally firming the Tokyo session, has come off from intraday highs during the London AM session. The pair’s high on Friday was the loftiest level seen since June 14, and followed above-forecast composite Eurozone PMI survey reading in preliminary June data. While the pair’s two-month downtrend has been on pause in recent weeks, we expect that the balance of risk remains skewed to the downside. Trade tensions are likely to worsen, which recent price patterns suggest will benefit the dollar more than the euro. The Trump administration and its global counterparts are locked in their respective positions with little scope for negotiated resolution at this juncture. At the same time the new, fundamentally Eurosceptic Italian government has ongoing potential to rock the euro boat. The relative monetary policy paths of the Fed and ECB also favours the dollar over the euro, although this has already been priced in to some degree. EUR-USD has resistance 1.1675.