US-China Tensions Ease Somewhat, CAD Rallies on Poloz’s Remarks

US and China Look for Another Round of Trade Talks

The dollar traded higher against most of the other G10 currencies on Thursday and during the Asian morning Friday. It gained the most against CHF, JPY and EUR in that order, while it underperformed only versus SEK and CAD. The greenback traded virtually unchanged against NOK.

NZD/JPY — Technical Outlook

From around mid-October, NZD/JPY is trading inside a range, roughly between the 69.00 and 70.00 levels. After yesterday’s failed attempt to test the upper bound of that range, the pair drifted back down again. From the very short-term perspective and given that the yen is still somewhat attractive for investors, given the slight risk-off mood in the markets, we may see the rate moving towards the lower side of that range. Thus, although we will hold a neutral stance with regards to the short-term picture, for now, we would aim lower within the range.

Loonie Lifted by BoC Governor Poloz

Back to the currencies, the Canadian dollar came under buying interest after BoC Governor said that monetary conditions are “about right”. The Canadian economy is in a good place overall and we are still quite simulative where we are today, the Governor added. The message we got from the latest BoC meeting, as well as by Poloz’s conference then was that officials have started flirting with the idea of easing. Therefore, Poloz’s remarks yesterday woke up CAD-bulls and prompted participants to take some cut bets off the table. Ahead of Governor’s comments, according to Canada’s OIS (Overnight Index Swaps) there was a 25% chance for a rate reduction at the December meeting, while now there is only 11%. The market is fully pricing in a quarter-point cut to be delivered in September next year.

EUR/CAD — Technical Outlook

Overall, EUR/CAD is still trading inside a short-term rising channel pattern drawn from the beginning of October. But after hitting the upper bound yesterday, the pair reversed back down sharply. Given that the Canadian dollar has picked up some buying interest, there is a chance we may see EUR/CAD going for a larger correction down, because let’s not forget that it is still within an uptrend overall. But in order to get comfortable with further declines, a drop below this morning’s low, at 1.4680, would be needed. Until then, we will stay cautiously-bearish.

As for the Rest of Today’s Events

During the European morning, we get the preliminary PMIs from several European nations and the Eurozone as a whole. The bloc’s manufacturing index is expected to have risen somewhat, but to have remained within the contractionary territory. Specifically, it is expected to have risen to 46.4 from 45.9. The services print is forecast to have increased to 52.5 from 52.2. This would drive the composite PMI up to 50.9 from 50.6. Although rising PMIs could help somewhat the euro, we believe that traders of the common currency could pay more attention to a speech by the new ECB President, Christine Lagarde, as they may be eager to get information with regards to her view around monetary policy.

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