May 31,2019

USDCAD Open (6:00 am EDT) 1.3545-48   Overnight Range 1.3496-1.3562

The Canadian dollar found a modicum of support following this mornings Canadian Q1 GDP report.  Q1 GDP rose 0.4% q/q a tad softer than the 0.7% forecast  but a touch better than the downwarly revised 0.3% result last month.  That news was offset by the better than expected o.5% gain in March GDP.  The icing on the cake was the 5.6% surge in the Raw Material Priced Index which knocked USDCAD down from 1.3560 to 1.3530.

The US Personal Income and Expenditures report  was higher than expected but it didn’t have much impact on trading due to the fresh trade tensions.

 President Trump tweeted fuel on an already firey month end, wreaking havoc across financial markets. Trump wrote “On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,.. ….at which time the Tariffs will be removed. Details from the White House to follow.”

Meanwhile, US Vice President Mike Pence was in Ottawa trying to help move ratification of the Nafta replacement deal.  Even Trudeau is smart enough to question the value of any agreement with the US if Trump still tariff bomb countries-trade deal or no trade deal.

Trump’s tweet decimated the Mexican peso. It soared from 19.1414 to 19.7643.  The Loonie suffered alongside it..

Traders were still digesting the Mexico news when China retaliated to recent US actions.  China is putting “unreliable entities” which they describe as companies that damage domestic firms.  The “unreliables” will include individuals and organisations that “violate contracts and cut off supply for non-commercial reasons.”

Traders stampeded into safe-haven currencies.  USDJPY collapsed, falling from 109.61 to 108.73 where it opened in New York.  The drop was fueled by a 1.62% plunge in the Nikkei and diving US 10-year Treasury yields which dropped from 2.274$ yesterday to 2.147%.

AUDUSD and NZDUSD are a touch higher in early New York trading, despite the escalation of trade drama.  However, further gains may be limited due to expectations of rate cuts from the RBA and RBNZ in June.

GBPUSD continued to fall, weighed down by the dog’s breakfast that is UK politics, “no-deal” Brexit and month-end portfolio demand to sell GBPUSD.  Technical analysts suggest that a close below 1.2600 today would extend losses to 1.2450.

EURUSD is rangebound but trading near the lower boundary.  Weaker than expected April German Retail Sales (Actual -2.0% m/m vs forecast 0.1%) helped to cap intraday upside.

The bottom fell out of the oil barrel.  WTI sank 6.6% since yesterday’s New York open.  The combination of escalating trade tensions, plenty of US crude inventories, and month-end position adjustments triggered the sell-off.

USDCAD soared from 1.3490 to 1.3562 following Trump’s Mexico tweet.  The steep plunge in crude prices exacerbated the move as did USDCAD demand for month-end portfolio rebalancing.  Bank of Canada Deputy Governor Carolyn Wilkins comments in Calgary merely reinforce the view that trade tensions will keep domestic rates unchanged for the foreseeable future.

USDCAD Technicals

The intraday technicals are bullish.  The break above 1.3470 combined with decisive breach of resistance is the 1.3520-30 area targets further gains to 1.3570 and then 1.3670.  A break below 1.3470 would negate the upward pressure and shift the focus to 1.3400.  for today, USDCAD support is at 1.3520 and 1.3470.  Resistance is at 1.3570 and 1.3620.  Today’s Range 1.3520-1.3570

Chart: USDCAD daily