The Canadian dollar lost 0.15 percent at the start of the trading week versus the dollar. The loonie had little support from oil prices as weather disruptions in the Gulf of Mexico are clearing up.
The battle of the doves last week was won by the Fed, by outdoving the Bank of Canada (BoC) with its more pessimistic rhetoric and with the market fully pricing in a rate cut at the end of the month.
The loonie remains trade sensitive, and with the prolonged US-China trade war in the background, any mention of the USMCA from President Trump that is not a ratification announcement puts the currency on edge. Trump remarked today that if congress doesn’t pass the USMCA, he has a better deal. Given his predilection for tariffs the news was a factor in the loonie’s drop.
The US dollar was mixed on Monday as Chinese data painted a bleak scenario if the US-China trade war drags on for long. Commodity currencies were higher, specially the AUD and NZD as industrial production in China was one of the few highlights.
Chinese growth is on track for a 27 year low with the US-China trade dispute a major factor, but the Asian giant is also hit by weaker domestic demand and concerns of a frail financial system. Exports have been hit by the US tariffs and this disappointing data could be used as leverage by the US when trade talks pick up again in the short term.
Earnings season has begun, and investors are on the lookout for downgraded guidance from US companies to gauge how deep is the consumer feeling the US-China trade war.
The market anticipates the Fed to cut at least two times in 2019, with the first one most likely to come at the end of the month as per the FedWatch tool from the CME.
Oil prices fell on Monday after the weather disruptions will be temporary with operations in the Gulf of Mexico already getting back to work. Oil was caught in the mixed data from China. Higher industrial production was a positive for crude as it translates to higher demand for energy, but the overall growth slowdown of the economy was a negative.
Iran issued a diplomatic speech where President Rouhani said that if US sanctions are lifted, they are ready to hold talks. This is a departure from the more aggressive tone of the previous week as the closure of Strait of Hormuz was mentioned.
Crude has been trading higher as supply disruptions for weather and geopolitical issues have influenced the pricing after the OPEC+ extended its production cut deal into 2020.
Gold keeps rising as the US dollar remains weak on the probability of an upcoming rate cut. The Fed was in full dove mode last week, with a 25 basis points fully priced in, but there could be a bigger cut if pressure from the White House for lower rates sooner rather than later.
The yellow metal was not immune to the volatility after the Chinese economic data was released, but at the end of the day its status as a safe haven as a softer earnings season begins is keeping the metal above the $1,410 price level.
Trader anxiety was in full display as the US stock market was mixed on soft China GDP news and the start of what could be a terrible earnings season. Even though the US-China trade war has managed to avoid hitting consumers directly, there will be more negative guidance as there seems to be no deal in sight.
The U.S. Federal Reserve is expected to cut rates, and the overall dovish central bank contingent is keeping stocks hitting record highs, despite the data. The Fed will go the full 180 on rates, after hiking four times in 2018.