USD Pauses On PBOC's New Reserve Ratio Requirement
Ashraf Laidi | Aug 03, 2018 08:47AM ET
In the latest piece of evidence that the USD strength has been mainly a result of the Chinese yuan, US dollar is now falling across the board following the announcement (12:18 pm London Time) from the People's Bank of China to begin requiring clients a reserve ratio of 20% on currency forwards. The decision is aimed at stabilizing recent volatility from trade frictions. FX saw broad strength in the US dollar over the last 12 hours but the Canadian dollar remains on top -- the best performing currency of the last 5 days and of the last 4 weeks on continuous data robustness from Canada. Most of all, prolonged optimism on the NAFTA front has been the most direct booster to the loonie.
The cloud over the loonie at the moment is the NAFTA agreement but signs have undoubtedly improved. Yet the market is unwilling to give the Canadian dollar credit because of the whimsical nature of White House negotiations. If a deal is struck, the market may take another look at Canadian fundamentals and find reasons to cheer. Recent numbers on retail sales, CPI and GDP have been glowing.
On the flipside commodity prices aren't as strong as they appear. Today the spread between US oil and Western Canada Select hit the widest since 2013 at almost $31. Lumber, another major Canadian export, is down 45% since May. Industrial metals are around 15% down from the highs of a month ago and precious metals remain beaten down. One spot to watch is LNG, where Canada may get some inbound investment.
In any case, the day ahead is likely to be about the US side of the equation with non-farm payrolls due. Wages will once again be the market driver with the consensus at +0.3% m/m.
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.