Trump trade tweaks trash loonie 28Apr17


Trump trade tweaks trash loonie

Michael O’Neill

FX Trade Strategist / http://www.Loonieviews.net

Canada

* Canada GDP data came in flat and failed to boost CAD

* US softwood lumber duty sends USDCAD soaring

* US GDP weaker than expected but offset by a higher employment cost index

By Michael O’Neill

When Canada’s prime minister paid homage to president Trump in Washington on February 13, Trudeau reportedly received assurances from the president that the US only wanted to tweak the North American Free Trade Agreement.

More specifically, Trump said “we have a very outstanding trade relationship with Canada. We’ll be tweaking it. We’ll be doing certain things that will benefit both of our countries. Our relationship with Canada is outstanding. We are going to work together to make it even better.”

The PM, and many others in Canada, breathed a huge sigh of relief that Canada’s economy would be spared “the wrath of Trump.”

Alas, it was not to be. Imagine the surprise in Ottawa on April 24 when US Commerce Secretary Ross slapped a 20% countervailing duty on softwood lumber imports from Canada… and to rub salt into the wound, he made it retroactive for 90 days.

USDCAD rallied on the news and has since added to those gains.

Hewers of wood and drawers of water, beware. Photo: Shutterstock

On April 26, there was a rumour (trial balloon, maybe?) that Trump was going to pull the USA out of Nafta. USDCAD soared, rising from 1.3540 to 1.3648 in Asia.

That night, the rumour was kiboshed as Trump announced, “I received calls from the president of Mexico and the PM of Canada asking to renegotiate Nafta rather than terminate. I agreed… subject to the fact that if we do not reach a fair deal for all, we will then terminate Nafta,”

USDCAD unwound its earlier gains. However, the fact that the US leaving Nafta is a real possibility led to renewed strength.

In Donald Trump’s 1987 book The Art of the Deal, he outlines 11 steps for business success:

1. Think big

2. Protect the downside and the upside will take care of itself

3. Maximize your options

4. Know your market

5. Use your leverage

6. Enhance your location

7. Get the word out

8. Fight back

9. Deliver the goods

10. Contain the costs

11. Have fun

It would appear that steps three through seven have been employed in the trade talks with Canada and the loonie is collateral damage. The Fibonacci retracement of 2016’s 1.2458-1.4689 range targets 1.3837 (61.8% level and then 1.4162 (76.4% level).

USDCAD daily with Fibonacci retracement

Source: Saxo Bank

The week ahead

The new month kicks off with a distinct lack of players on day one. A host of countries are closed on Monday including China, Germany, and the UK which will put a damper on trading activity. Japan books off for three days beginning Wednesday.

On Monday, AUDUSD traders will focus on inflation data while the US ISM Manufacturing PMI data will be the highlight of the New York session.

Tuesday, the Bank of Japan policy meeting minutes are released and the governor delivers a speech. The Reserve Bank of Australia interest rate decision is also due. Rates are expected to be unchanged and the statement “cautious” before Europe unloads a ton of Manufacturing PMI data. The US data calendar is bare.

Wednesday, Japan is closed. NZDUSD traders will react to the GlobalDairyTrade auction released earlier in New York as well as the employment report. In Europe, Eurozone GDP and producer Price data is on tap. It is Federal Open market Committee day but as FOMC meetings go, this is expected to be a snooze-fest. It is a statement-only meeting

Thursday, Japan is closed again. AUDUSD traders will be busy dealing with trade data and a RBA governor speech. Markit Services PMI data is released in the UK and Europe. Trade data is on deck in Canada and the US.

Friday, Japan is still closed. Eurozone Retail Sales data gets released but the focus will be on the US employment report. If weather was truly a factor behind the week March data, this report may deliver payback.

The week that was

There were plenty of reasons to expect an entertaining week and for the most part, it was.

Monday, EURUSD gapped higher in Asia after Emmanuel Macron’s French election win. The gap has yet to be filled. It was the same story for USDJPY.

Risky assets love this man. Photo: Shutterstock

The election fallout continued in Europe and New York and dominated trading. German Ifo data didn’t cause a ripple and there weren’t any US data of note. Traders were also concerned about President Trump’s promised “big tax reform” news due Wednesday.

Tuesday, the Asia session was a tad quieter than normal due to Anzac holidays in Australia and New Zealand. EURUSD climbed to 1.0898 in Europe and peaked at 1.0950 in New York thanks to Reuters reporting “sources” at the ECB said a tapering signal may be seen in June.

The Canadian dollar was crushed when the US announced 20% countervailing duties on softwood lumber imports, retroactive for 90 days. The loonie recouped its losses by the end of the New York session on an oil price rebound.

Positive US economic data releases did not have much impact as traders were waiting for Trump-s tax plan. The US dollar ended the session with losses against the majors except for Kiwi and yen.

On Wednesday, Asia, and European traders were buying USDJPY and selling EURUSD ahead of the US tax announcement – even sterling got into the act. AUDUSD popped to 0.7550 as Q1 CPI was released but quickly faded the move. The US opened with small gains across the board. The highly touted, “biggest in American history”, tax cuts underwhelmed. Most of the headlines were leaked earlier and the administration was vague on details.

European currencies and yen all finished the day higher. The commodity currencies got whacked, led by the Canadian dollar, due to a report that President Trump would take the US out of Nafta. He didn’t.

Thursday, the Bank of Japan monetary policy statement did not cause mush of a stir. USDJPY inched up from an opening level of 111.04 ahead of the BoJ announcement but couldn’t get any traction above 111.37. USDCAD reversed Wednesday’s gains after the US administration said that it would not leave Nafta. Oil prices continued to move lower on oversupply concerns. Sterling got a boost in Europe on an election poll showing the conservatives with a big lead.

The European session was quiet until mid-morning when the ECB policy statement was released. It was as expected. Mario Draghi’s press conference triggered EURUSD selling which didn’t last and EURUSD recouped most of its post-press conference lows by the end of the New York session.

US data releases were softer than expected but didn’t have much of an impact on trading. The dollar ended the New York session with small gains across the board except against sterling and yen which were almost unchanged.

On Friday, higher than expected Eurozone inflation data lifted EURUSD in European trading. The US GDP data was mildly softer than expected and did not have much of an impact.

– Edited by Michael McKenna


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Author: Loonieviews

In the past 30+ years, I have been an FX interbank market making trader, a high performing FX and Derivatives Sales person, creator of simple and complex risk mitigation strategies and a manager of high performance FX teams. The Trade of the Day is a culmination of that experience. Retail FX traders have access to a well-crafted and carefully researched FX trade strategy designed to generate FX profits while mitigating losses.

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