North Korea announced it was willing to scrap its Nuclear program in exchange for guarantees of its safety. Traders scrambled to buy risk assets, including commodity currencies and the US dollar sank.
USDCAD dropped I from 1.2975 to 1.2864 on the news. The move was worsened by stop-loss selling on the break of 1.2920 and 1.2980. The loonie wasn’t the only currency impacted. EURUSD rallied from 1.2335 to 1.2412, GBPUSD climbed to 1.3928 from 1.3818 while USDJPY reversed all of its European losses.
The broad US dollar sell-off is a knee-jerk reaction to what will invariably be a long, drawn-out process. Fresh tariffs are a more immediate risk to the Canadian dollar. The lack of actionable US economic data today may have exacerbated the dollar sell-off. The Bank of Canada policy meeting on Wednesday is likely to be a non-event. Rates are expected to be unchanged, and the current trade kerfluffle suggests a cautious policy statement. Taken together, USDCAD remains a buy on dips.
FX markets were uneventful in overnight trading. Fears of a market meltdown from Trump’s steel and aluminum tariffs eased after media reports that even Republicans were pushing back on implementing the tariffs. That should be taken with a grain of salt. Trump rarely backs down. (Crooked Hillary, Mexico Wall, Immigration). Trump did say that Canada and Mexico could be exempt if the two countries agree to a “new and fair” Nafta. Don’t hold your breath. Round 7 of the Nafta negotiations finished and US Chief negotiator, Robert Lighthizer was talking about bilateral agreements.
In Asia, the Reserve Bank of Australia left policy rates unchanged and issued a neutral statement. AUDUSD bounced around in a 0.7758-0.7791 range. NZDUSD drifted higher in a narrow range.
USDCAD Technical outlook:
The intraday USDCAD technicals are bullish while prices are above 1.2860 suggesting that the drop from 1.2991 is a correction. A break below 1.2860 would negate the topside risk and suggests a new 1.2500-1.2900 trading range. A break above 1.2990 targets 1.3060. For today, USDCAD support is at 1.29860 and 1.2810. Resistance is at 1.2930 and 1.2960
Today’s Range 1.2860-1.2960
