After a strong bull market that lasted from November 2016 (following Trump's victory) to January 2017, CAD/JPY reversed for many months until June. Since then, the exchange rate has strengthened thanks to underlying strength in the Canadian dollar. The loonie has been supported in the latter half of 2017 by strong economic growth and interest rate hikes.
The Canadian dollar is currently mixed. The loonie is selling off against the euro and the Australian dollar, while strengthening against other major currencies. Yesterday, the loonie was the weakest major currency, ending the day lower against its peers. Despite a small rally in commodity prices and a softer US dollar, the Canadian dollar was out of favor, ending lower against the US dollar for the second consecutive day. Today's trading range for USD/CAD is 1.3080 - 1.3390.
Growing uncertainty regarding NAFTA negotiations is starting to weigh on the Canadian dollar. Yesterday, US trade representative Robert Lighthizer said he hopes there will be a breakthrough in NAFTA negotiations in the next few days. However, US President Donald Trump told Lighthizer that he is in no rush for a resolution, and is ready to walk away from talks if necessary. Trump said that "We’re either going to do a fair NAFTA for us or we’re not going to do NAFTA at all.” He added that “If you can’t make the right deal, don’t make it.” Trump has been vocal about NAFTA negotiations recently, casting doubt on whether or not the US, Mexico and Canada can reach an agreement.
Later today we'll see Canadian inflation numbers. Traders will be looking for signs that inflation is continuing to strengthen after last month's 2.5% year-over-year increase showed the biggest pick-up in inflation since 2012. Rising inflation is a major factor in the Bank of Canada's monetary policy, and continued strength increases the likelihood of future rate hikes. Yesterday we downgraded our outlook for the Canadian dollar to bearish.
The USD/CAD exchange rate is currently above 1.3130. The euro is up slightly against the Canadian dollar, with EUR/CAD currently above 1.4980. The pound is down slightly against the Canadian dollar, with GBP/CAD trading above 1.6710. CAD/JPY is flat, and currently trading above 84.30.
|August 15||New Motor Vehicle Sales JUN||204.4K||220.3K|
|August 16||ADP Employment Change JUL||11.6K||-10.5K|
|August 16||Manufacturing Sales MoM JUN||1.1%||1.4%|
|August 17||Core Inflation Rate YoY JUL||1.3%|
|August 17||Inflation Rate YoY JUL||2.5%|
|August 17||Foreign Securities Purchases JUN||C$2.18B|
|August 17||Foreign Securities Purchases by Canadians JUN||C$5.69B|
The Japanese yen is mixed today. The yen is weakening against the euro and the Australian dollar, while strengthening against the US dollar and the British pound. Yesterday, the yen weakened and fell against the US dollar. Notably, USD/JPY is running into sellers above ¥111.0 despite steadying risk sentiment. Today's USD/JPY trading range is 110.10 - 113.20.
Taking a look at financial markets yesterday, risk sentiment improved following news that China's vice-commerce minister will lead a delegation to the US to revive trade talks between the two countries. The news boosted risk sentiment during the Asian trading session. Sentiment was further enhanced by solid US earnings reports, supporting US stock markets. Risk currencies finished the day higher, while the safe haven yen was lower. Risk assets have come under strong selling pressure in recent history. Yesterday's recovery in 'risk on' currencies will be a a welcome relief, but the outlook for global growth remains negative. Our outlook for the Japanese yen remains bearish.
USD/JPY is currently trading above 110.70. EUR/JPY is up slightly, and trading above 126.30. GBP/JPY is down slightly, and trading above 140.80.
|August 14||Capacity Utilization MoM JUN||-2.2%||-2.1%|
|August 14||Industrial Production YoY Final JUN||-0.9%||4.2%|
|August 16||Balance of Trade JUL||-¥231B||¥721B|
|August 16||Exports YoY JUL||3.9%||6.7%|
|August 16||Foreign Bond Investment 11/AUG||¥123.9B||¥1171B|
|August 16||Stock Investment by Foreigners 11/AUG||¥-107.1B||-¥225.2B|
|August 16||Imports YoY JUL||14.6%||2.5%|
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