News & Analysis


After enjoying a day off for Labor Day, the Canadian market will reopen today to a marginally weaker loonie. The Canadian dollar sold off 0.34% against its US counterpart yesterday as the greenback broadly rallied against the G10, with the loonie continuing to weaken in this morning’s session. Despite broad USD strength, the slump in oil markets is also driving the loonie lower. The decision by Saudi officials to cut pricing for oil in October for shipments to Asia, its largest exporting market, along with shipments to the US, highlights the tepid demand outlook. The cut in prices is the first time Arab Light to Asia trades at a discount to the benchmark used by officials since June, while the reduction in pricing to the US market is the first price reduction in six months. With OPEC+ ramping up supply last month and the recovery starting to slow globally, the signal sent by this move was enough to send oil nosediving, while renewed tensions between the US and China hasn’t helped ease concerns over the demand outlook. Despite the price cuts, only 4 in 10 Asian refiners surveyed by Bloomberg said they would try to buy more Saudi Arabian crude. Today, focus will be on the Bloomberg Nanos Confidence Index released at 13:30 BST/ 08:30 ET for the week of September 4th, ahead of tomorrow’s Bank of Canada meeting.


The dollar rose along with other safe havens overnight after President Donald Trump pledged to scale back economic ties with China, a striking contrast to Joe Biden’s position on the matter. During the White House news conference on Monday, he threatened to punish any American companies that create jobs overseas, as they should “pay a big tax to build it (labour) someplace else and send it into our country”.  Trump stated that if Biden wins the election, China will “own” the US. Subsequently, Biden turned the argument against Trump, accusing Trump of being soft on China to secure a phase-one trade deal in January and only blaming China after his administration lost control of its domestic coronavirus outbreak. Though the rising tensions may have spurred some of the safe haven gains, it may also be a matter of markets returning to normality after Monday’s Labor Day holiday. With another light day on the data front, the dollar remains at the mercy of further developments in risk sentiment.


The euro managed to resist further depreciation against the greenback this morning despite mixed German Trade and Current Account data. With German Bunds and Treasury notes dipping lower, the spike in EURUSD this morning seems to stem from buying orders in equity futures rather than the economic data releases. In Germany,  senior Finance Ministry official Werner Gatzer stated that the country shouldn’t return to a balanced budget anytime soon if it wants to counter the pandemic crisis and modernise its economy. The comments suggest that Germany’s spending may reflect a new approach rather than just a temporary departure from the country’s “black zero” rule, which insists on a budget balanced between fiscal spending and tax receipts. The comments came after Finance Minister Olaf Scholz reiterated last week that Germany should aim to get its finances “back to normal” in 2022. Since the beginning of the temporary suspension of the country’s debt brake, headlines had been mentioning the possibility of the suspension ending up to be permanent, but having this confirmed by a government official is unusual for Germany and may indicate a turn. Today’s calendar includes a health check on the eurozone economy with final GDP figures scheduled for release at 10:00 BST. This comes after the big miss in German industrial output yesterday, which pointed to a long road to recovery. Should today’s GDP numbers surprise to the downside, this may provide something to chew on ahead of the European Central Bank meeting on Thursday – the eurozone’s main event of the month.


Sterling is the worst-performing G10 currency for the second consecutive morning, as renewed no-deal Brexit risk has once again put the pound under pressure. Following reports over the weekend that the UK Government was planning legislation that would risk reneging on the Northern Ireland components of last year’s withdrawal agreement, Michel Barnier issued a warning yesterday that such a move could cause trade talks to collapse. Boris Johnson spoke on the phone with French President Emmanuel Macron, who said the who enjoyed a “very good exchange” on other matters, while Johnson reportedly said the legislative changes were “limited”. Michel Barnier will arrive in London for further trade talks, and is expected to press home the point that any backtracking on last year’s withdrawal agreement will imperil trade talks. In addition to spot FX markets selling the pound, options markets appear to be bracing for an increase in near-term volatility. The implied volatility of one-month at-the-money GBPUSD options, which is used to price the securities, rose above 10% for the first time since June. This morning’s data has included a report from the British Retail Consortium, which showed like-on-like sales rising a solid 4.7% year-on-year in August.



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