The Canadian dollar added to yesterday’s gains in stable markets overnight. The additional gains are due to an increased sense of positive risk following optimistic news from senior US and Chinese trade officials regarding the implementation of the Phase 1 trade agreement.
US Trade Representative (USTR) Robert Lighthizer, Treasury Secretary Steven Mnuchin and Chinese Vice Prime Minister Lui He said they had had positive discussions on the implementation of the trade agreement signed in January. The USTR statement said, “The two sides agreed that satisfactory progress was being made in creating the government infrastructure necessary to make the deal a success. They also agreed that despite the urgency global health, the two countries fully expect to meet their obligations under the agreement in a timely manner. ”
The trade news encouraged a large sale of US dollars, as did the outlook for federal funds futures. These forward contracts forecast negative US interest rates from December 2020, even though many officials of the Federal Open Market Committee oppose them.
Oil prices have consolidated recent gains which have brought prices back to mid-April levels. West Texas Intermediate. WTI traded in the range of $ 23.37 to $ 24.90 / barrel overnight while it traded in Toronto at $ 24.00 / barrel. Prices continue to be supported by massive production cuts of 10 million barrels / day agreed by the Organization of the Petroleum Exporting Countries and Russia, which came into effect on May 1.
Last week, Reuters announced that Saudi Arabia had decided to end its price war after President Trump threatened that if they did not do so, the United States would end their support for the Saudi Arabia.
Currency trading was lighter than usual in Europe as the UK was closed to celebrate the 75th anniversary of VE Day (Victory in Europe).
Traders also lacked motivation to get involved before employment reports in the United States and Canada. The United States is expected to lose 22 million jobs in April, while the unemployment rate climbs to 14% from 4.4% in March. The results will not surprise anyone, due to the aggressive measures taken to combat COVID-19.
It can be argued that better than expected results will have a greater impact on the US dollar than weaker results. This is because traders will decide that the US economy has not suffered as much as expected.
Canada is expected to report four million job losses and an unemployment rate of 18%. Worse than expected data will encourage sales in Canadian dollars.
Rahim Madhavji is President of KnightsbridgeFX.com, a Canadian Money Exchange Bureau That Offers Canadians Better Rates Than Banks