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Canadian dollar update – Tuesday August 25, 2020. US & China reaffirm trade deal.

FX & market recap:

US and China trade discussions gave positive risk sentiment a nudge. US Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and China Vice Premier Liu He had a video chat to discuss the implementation of the Phase 1 Trade deal. The press release from Lighthizer’s office said: “both sides see progress and are committed to taking the steps necessary to ensure the success of the agreement.”

It was music to the ears of Asia equity traders which closed with gains. European bourses are higher as are S&P futures. Oil prices continue to be underpinned by potential supply disruption from the Gulf of Mexico hurricanes, while gold slipped on the weaker US dollar and the perception that US/China tensions eased.

Today’s US data includes New Home Sales, Case-Shiller Home Prices, and Consumer Confidence.

Canadian dollar highlights:

USD/CAD drifted lower alongside its antipodean currency peers. Traders ignored the press release from the US Trade Representative about Canadian lumber. The announcement said that the American’s did not accept the World Trade Organization (WTO) ruling that US tariffs on Canadian lumber exports were illegal. The American’s complained that the WTO did not defer to the US investigating authority’s judgement.

The news may not impact the Canadian dollar today, but Aluminum tariffs, and the threat of lumber tariffs could be the opening salvo to a new US/Canada trade war.

Euro highlights:

EUR/USD inched higher overnight, rising from 1.1785 to 1.1841. Price action in Europe was choppy. Weak Q2 German GDP (actual -11.3% y/y) knocked EUR/USD from 1.1833 to 1.1811 before better than expected German IFO data took prices to 1.1841. The GDP news was stale but not the IFO data, which suggests German businesses are optimistic the economic rebound is strengthening.

British pound highlights:

GBP/USD traded firmer, climbing to 1.3114 from 1.3060, supported by reports that EU Trade negotiator Barnier and his UK counterpart, Frost, are having informal trade talks this week. Prices were also supported by broad US dollar weakness.

Asia Pacific highlights:

USD/JPY rallied alongside the improved risk sentiment tone, sparked by the US/China trade talk news. Yesterday’s report that the US was fast-tracking a coronavirus vaccine also helped sentiment. Meanwhile, AUD/USD managed to get some traction from broad US dollar weakness, marginally outperforming NZD/USD.

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