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Canadian dollar update – Wednesday December 4, 2019. Trade optimism fading after Trump’s comments and tariff threats.

Currency-Market-Update-Wednesday-1
Albert Edwards
by Albert Edwards on December 04, 2019

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD defensive after President Trump said a trade deal with China may be best after the 2020 election. Risk-aversion continues as trade tensions increase (with Europe and China). The Commerce Secretary also said that if a deal with China is not finalized by December 15, then more tariffs on imports will be imposed (including smartphones, toys and children’s clothing). Meanwhile, China’s government will release a blacklist that could lead to sanctions against U.S. companies. The trade war has lasted 20 months now and the lack of urgency for a truce is affecting stocks. Negotiations continue between the world’s two biggest economies, however, no meeting planned between Presidents Trump and Xi. Crude oil inventory for last week available today.

Canadian dollar update:

CAD stable as the focus is on the Bank of Canada’s Interest Rate decision today. No changes are expected, and markets will pay attention to any hints of a potential cut in Q1 2020. There is currently a 20% chance of a rate cut in January. CAD will be under pressure the rest of week due to the OPEC meeting starting tomorrow and the November unemployment report available Friday. During the NATO leaders meeting in London, President Trump said Canada was “just slightly delinquent” for not meeting the target of 2% of GDP.

Euro highlights:

EUR weaker and under pressure after President Trump said he is unhappy with France’s digital tax. Trump threatened to impose a 100% tariff on French goods worth $2.4 billion USD; meanwhile, French Finance Minister Bruno Le Maire said the European Union would retaliate. Trump also expressed his displeasure with the current state of trade with the European Union. On Monday, the U.S. announced tariffs on metal imports from Brazil and Argentina. GDP Growth Rate for Q3 and Retail Sales for October available tomorrow.

British pound highlights:

GBP stronger after a new opinion poll confirmed the Conservatives lead over Labour has increased to 12 points. The Construction Purchase Managers Index also improved in November to 45.3 reading (from 44.2 in October and higher than expected 44.5). The Services Index will be available today. GBP has recovered from the lowest levels since 2016.