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Canadian dollar update – Tuesday December 3, 2019. Risk aversion dominates after China retaliates.

Currency-Market-Update-Tuesday-1
Albert Edwards
by Albert Edwards on December 03, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stable and has been stuck in a tight range the past week. Markets will continue to focus on the Phase One agreement with China and hope that an agreement will be finalized before the end of 2019. China retaliated to President Trump’s support of protesters by suspending U.S. warship visits and suspending non-government organizations. This confirmed that tensions are rising between the world’s two biggest economies. The two other issues are China agricultural purchases and rolling back tariffs. Meanwhile, President Trump also announced tariffs on metal imports from Brazil and Argentina. In addition, if a deal is not confirmed with China by December 15, Trump will impose an additional 15% tariff. Construction spending decreased 0.8% in October while the Manufacturing Index improved to 52.6 in November (from 51.3 in October).

Canadian dollar highlights:

CAD under pressure with the Bank of Canada policy announcement tomorrow. In addition, the OPEC meeting will be on Thursday and Friday. November unemployment rate will also be available on Friday. The central bank is not expected to cut rates, however, markets will monitor any hints of a potential rate cut in Q1 2020. Meanwhile, OPEC will decide whether to extend supply cuts or continue with existing cuts. A surplus of oil in 2020 will put pressure on prices and affect CAD. The Manufacturing Index for November also improved to 51.4 reading (from 51.2 in October).

Euro highlights:

EUR defensive as new European Central Bank President Christine Lagarde delivered her second speech since replacing Mario Draghi on November 1, 2019. The central bank is limited with monetary policy and Lagarde may suggest more fiscal stimulus and interest rate cuts during next week’s meeting. The Manufacturing Index for November contracted for the tenth straight month with a 46.9 reading (from 45.9 in October). Output, new orders, exports and employment continue to shrink (due to Brexit uncertainty).

British pound highlights:

GBP lower after the latest polls suggest the possibility of a hung parliament. President Trump arrived in the U.K. yesterday and the Labour Party is worried he may intervene in the election campaign by endorsing Prime Minister Johnson. The Manufacturing Index for November contracted to 48.9 (from 49.6 in October).

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