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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 08 June 2018 at 13:29 GMT

Canada G-7 – more of a fight club than a forum

FX Trade Strategist / www.Loonieviews.net
Canada
  • US dollar grinds higher ahead of major event risk
  • G-7 meeting may be more acrimonious than genteel
  • Weak Canadian employment data underpins USDCAD
summit
Big grins at the summit in Taromina, Italy, last year. Who's laughing now?
Photo: Wikimedia Commons 

By Michael O’Neill

The Canada G-7 meeting in Charlevoix, Quebec is beginning somewhat acrimoniously. It will not be a forum where leaders of the industrialised nations can meet in a relaxing atmosphere to discuss issues affecting the international community. Instead, it is shaping up to be a politician’s version of the UFC.

Prime Minister Justin Trudeau is the host. He is proud of the themes and leader’s programme for this meeting. They are: a) Investing in growth for everyone. b) Advancing gender equality and women's empowerment. c) building a more peaceful and secure world. c) Preparing for jobs of the future. d) Working together on climate change, oceans, and clean energy.

The leader’s agenda has a glaring omission. There isn’t a time-slot scheduled for free trade and tariff discussions. That may change. The evidence is this tweet sent on Thursday morning: “Isn’t it Ironic? Getting ready to go to the G-7 in Canada to fight for our country on Trade (we have the worst trade deals ever made), then off to Singapore to meet with North Korea and the Nuclear Problem...But back home we still have the 13 Angry Democrats pushing the Witch Hunt!”

Prime Minister Trudeau and French President Emmanuel Macron used a photo op on Thursday to send a warning to President Trump. They said they would warn the President that his tariffs will “backfire and harm America’s workforce.”

The thin-skinned President was not likely to take kindly to criticism from a couple of youngsters 25-30 years his junior. He didn’t. Within hours of the statement, he tweeted his reply: “Please tell Prime Minister Trudeau and President Macron that they are charging the U.S. massive tariffs and create non-monetary barriers. The EU trade surplus with the U.S. is $151 Billion, and Canada keeps our farmers and others out. Look forward to seeing them tomorrow.” A few hours later he took another shot at Justin Trudeau. “Prime Minister Trudeau is being so indignant, bringing up the relationship that the U.S. and Canada had over the many years and all sorts of other things...but he doesn’t bring up the fact that they charge us up to 300% on dairy — hurting our Farmers, killing our Agriculture!” 

Late last week, Trump floated the idea (again) of having bilateral discussions with Mexico and Canada. On June 5, National Economic Council director Larry Kudlow said that Trump’s preference is to negotiate separately.

The Washington Post reported that President Trump wanted to skip the meeting altogether. He has since confirmed his attendance. However, he must have read the Leaders Programme for Saturday, June 9, because he is bailing, early.

The faces have been slapped; the gloves are off. In G-7 Fight Club, the only rules are Trump’s rules.

Loonie’s feathers get plucked

It should have been a good week for the Canadian dollar.  It wasn't. On May 30, the Bank of Canada issued a hawkish statement, hinting at a July rate increase and leaving the door open for more. However, the positive Canadian dollar sentiment didn’t survive the month end, and trade jitters have been the catalyst. That’s when the US slapped tariffs on Canadian steel and aluminium imports, even though the Nafta renegotiations are still ongoing. Fears about the demise of Nafta and concern about a hawkish conclusion to the June 13 Federal Open Market Committee meeting are underpinning USDCAD.

The Canadian labour report didn’t do the Canadian dollar any favours either. The weaker-than-expected data raises questions about governor Poloz’s optimistic economic outlook while increasing the currency’s downside risk to adverse trade news.

USDCAD is in an uptrend from February while prices are above 1.2750 with a break above resistance in the 1.3165-1.3225 area opening the door to further gains to 1.3500

Chart USDCAD daily with long term support and resistance levels noted.
saxo


 Source: Saxo Bank

The week ahead:

Major Events

Tuesday: North Korea/US meeting in Singapore.

Wednesday: FOMC meeting and press conference: Market expects 25 bp rate hike. The Committee may give a “hawkish” tweak to the statement.

Thursday: European Central Bank policy meeting: Markets expecting news of an end-date for QE, as hinted at by ECB chief economist Peter Praet.

Friday: Bank of Japan policy meeting

Major Data

Tuesday: UK employment report. Unemployment rate is expected to be unchanged at 4.2%
US May CPI: forecast 0.2%, unchanged from April.

Wednesday: UK CPI, PPI and Retail Sales. CPI is expected to rise 2.6%, y/y vs April 2.4%, y/y increase.

Thursday: Australia employment is expected to add 18,2000 jobs with a drop in the unemployment rate to 5.5% from 5.6%.

Friday: EU harmonised CPI. YoY rate expected to rise to 1.9% from 1.2% Also, US industrial production and capacity utilisation data.

09 June
David12 David12
funny comment under the photo "Who's laughing now?" ...
of course they always laugh at the time of photoshoot; you have to see what they do when the cameras go off ;-)
09 June
Michael O'Neill Michael O'Neill
The photo and captions are from the talented Saxo editorial team, not me
10 June
David12 David12
Yes Mike, I knew that ...

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