The US dollar gained against the EUR, CHF and JPY but depreciated against commodity currencies. The comments on the NAFTA renegotiation boosted the loonie to a 5 week high against the greenback. US Trade actions have sparked anxiety as a trade war with China could break out after the Asian giant shot back with its own tariffs on US products. European economic data is dragging the euro lower ahead of the release of the US ADP private payrolls on Wednesday, April 4 at 8:15 am EDT. The forecast calls for a rise of 200,000 new positions. The employment report will keep the market focused on Friday’s release of the U.S. non farm payrolls (NFP) data with a stronger emphasis on hourly wages.
Dollar Surges Against EUR on Higher Risk Appetite
The EUR/USD fell 0.26 percent on Tuesday. The single currency is trading at 1.2270 after a lower than expected manufacturing data was released. The EU purchasing managers index (PMI) came in at 56.6 with multi month lows across the Eurozone. German PMI numbers are at an eight month low. The data marks a third consecutive month in decline for the purchasing managers survey, even as output remains strong. The rise of the USD was limited by investor concerns about a possible trade war given the US combative stance on deficits with other nations.
The return from the easter holiday gave the USD a boost as traders got back into the market. April is not a historically good month for the dollar, but given the terrible start to 2018 this time it could be an exemption. Strong fundamentals and higher rates from the U.S. Federal Reserve have been offset by the political uncertainty out of the White House. Alongside the ADP jobs report investors will be on the lookout for the release of the non-manufacturing PMI from the Institute for Supply Management (ISM) at 10:00 am EDT and the weekly report of US crude stocks at 10:30 am EDT.
NAFTA Hopes Boost Loonie
The USD/CAD lost 0.80 percent in the last 24 hours. The currency pair is trading at 1.2808 after US trade negotiators introduced an idea that intends to supplant auto regional content, with higher wage requirements. Mexican and Canadian authorities have not chimed in with their thoughts, but the loonie benefited form a more flexible US approach instead of the hardball tactics from earlier. US President Trump has put in a May 1st deadline for NAFTA to be renegotiated which has led to a softening of the US negotiation team. The wage parity approach is not one that automakers prefer as it will mean a rise in production costs that would need to be passed on to consumers.
A preliminary NAFTA deal could be announced next week keeping the CAD higher against the USD, but it could all be premature given the lack of consistency from the Trump administration. No data has been agreed to for the next round of talks in the NAFTA renegotiation. Mexican and Canadian official will be visiting Washington on separate occasions this week, with a weekend meeting between the three parties a possibility, specially if there is to be an announcement next week.
Canadian employment data will be released on Friday at the same time as the U.S. non farm payrolls (NFP). Economic fundamentals have been lower in Canada in the fourth quarter and could lead to the Bank of Canada (BoC) standing pat on rates until there are clear signs of growth or at least some of the trade headwinds are more clear. Trade pressure coming from Canada’s biggest partner will be a negative for the economy in 2018 with the BoC hiking rates once as opposed to the earlier forecasted 2 or 3 rate lifts.
Market events to watch this week:
Monday, April 2
10:00am USD ISM Manufacturing PMI
Tuesday, April 3
12:30am AUD Cash Rate
12:30am AUD RBA Rate Statement
4:30am GBP Manufacturing PMI
9:30pm AUD Retail Sales m/m
Wednesday, April 4
4:30am GBP Construction PMI
8:15am USD ADP Non-Farm Employment Change
10:00am USD ISM Non-Manufacturing PMI
10:30am USD Crude Oil Inventories
9:30pm AUD Trade Balance
Thursday, April 5
4:30am GBP Services PMI
8:30am CAD Trade Balance
Friday, April 6
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change
8:30am USD Unemployment Rate
