Daily FX Wrap: CAD and NZD lose out again, but EUR gets a late boost as ‘sources’ suggest ECB policy may be tweaked in wake of Macron ‘victory’. GBP defiant, as is USD/JPY through the 110.00’s.
No disputing the big losers today as both the CAD and the NZD came under pressure as the US administration got the knives out for lumber producers in Canada. Blaming unfair subsidies policy against US firms, Commerce Sec Ross announced plans to impose a20% tariff on imported softwood lumber, adding that it will consider similar moves on dairy produce after Canada looked to close loopholes on milk imports. Cue the CAD sell off, which met with resistance against the USD ahead of 1.3570, but we have since gone on to take this level out and delve into the 1.3600-75 zone which harbours some decent selling interest.
Losses seen against the EUR took the cross rate above 1.4800, with heavy Oil prices adding to the CAD’s woes, losing out against the AUD and CAD also, while GBP/CAD has now extended its rally into the mid 1.7400’s. Looking ahead to tonight’s API report, we could have a volatile session for both Oil and the CAD late into the NY close. Canadian retail sales tomorrow cover the activity in Feb.
The prospect of tariffs on dairy produce has clear implications on the NZ economy, and to this end we saw NZD/USD slipping back into the mid 0.6900’s, but some support seen since at the halfway mark. AUD/NZD has pushed into the mid 1.0800’s, but 1.0850 has held since as AUD/USD struggles to get any uplift from the low 0.7500’s.
Into the overnight session ahead, focus will AUD specific as local traders return from the ANZAC day holiday. We have the inflation report for Q1, and all measures are seen rising to a modest degree – the headline from 0.5% to 0.6%, trimmed and weighted means to 0.5% from 0.4%. If the response to the Canadian data is anything to go by, then any miss in expectations could see the support in the mid 0.7400’s retested.
Elsewhere, there are plenty of questions as to why the EUR continues to push/pushed through 1.0900, given the ECB meeting on Thursday was expected to maintain the accommodative stance, and we saw little chance that the governing council will risk another upturn in rates when the market sensed a hint of tapering earlier on in the year. However, late in the day we had another ‘ECB sources’ story suggesting policy may be tweaked in the wake of the Macron victory, as many rate-setters are open to sending a small signal towards reducing monetary stimulus.
Cross rate flow is another factor which may have been influencing the lead spot rate; we have already mentioned EUR/CAD (and possibly EUR/NZD), but into month end, EUR/GBP buying is a major contender, but sellers above 0.8500, and buyers pre-1.2800 in Cable seem to be fighting against the real money flow at present. Courtesy of the above ‘source’ story, we saw cross rate sellers further tested, with EUR/GBP in particular pushing up to just shy of 0.8525, but Cable bids have been insistent, which has led to the EUR/USD move towards 1.0950. More resistance higher up at 1.0970 and plenty more seen ahead of 1.1000.
Little data of note in the European time zone tomorrow, and even less in the US, but all eyes and ears will be on the proposed announcement from president Trump on tax reform, and we expect some of the upside pressure on USD/JPY has been in readiness for some market friendly plans. We won’t hold our breath, but with the USD at such depressed levels, some moderation was to be expected. However, cross rate flow has also been a key factor here, also and from last week’s sub 115.00 lows, EUR/JPY has now extended the rally to above 121.00. USD/JPY has gone on to put in a test on the high 110.00’s, but if we break above 111.00, 111.50-112.00 will be tough to overcome.
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