Equities rallied on optimism for the proposed Sino/US trade talks, but currency markets appeared less optimistic. Euro is near 2 year lows, Aud is near 10 year lows and CNY vs US$ is set for its worth month since 1994. Market uncertainties continue into the weekend as US imposes tariffs, two state elections in Germany and the release Chinese manufacturing data. Hong Kong protests continue possibly impacting trade talks, protesting is impacting HK economy as the country faces its first recession in a decade. Intraday, no key US data out so expect to see US$ to remain firm on buying for month end demand.
The Canadian dollar compared to its counterparts has remained remarkably resilient over in August. Oil prices are easing, but declining US inventories and the expect Florida hurricane is expected keep Oil prices firm. Canadian GDP data today, markets expect a positive Q2 which may be a one-off considering global conditions. C$ remains within a tight trading band, unable to breach 1.3250 level despite positive conditions. Look for todays GDP to give intraday market direction and provide signals for next week’s BOC meeting. Our bias remains to buy US$ dips.
Euro remains under pressure vs US$, weak German Retail Sales data today and investors expectation of further easing by the European Central Bank. The two state elections in Germany this weekend are increasing political concerns. Recent polls show the ruling coalition could lose to the insurgent far-right. Add to the mix Brexit, our bias remains for weaker Euro and possible test of May 2017 levels next.
Next week will be key week for GBP and UK PM. The PM’s effective shut down of the government from mid-September, only gives the opposition a small window to attempt a no-confidence motion. On the flip side of the coin, investors believe the PM’s gambit could make renegotiating a new withdrawal deal with the EU possible. Notwithstanding possibility of more GBP volatility, markets believe the negative news is now priced into GBP and optimism for longer term strength of the currency is growing. GBP strategy is buy on GBP dips for a rally after Brexit. Just 62 days to Brexit deadline.