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NAFTA Uncertainty Surpasses Fed, RBNZ Volatility. USD/CAD Reverses

NAFTA Uncertainty Surpasses Fed, RBNZ Volatility. USD/CAD Reverses

2018-09-26 23:00:00
Daniel Dubrovsky, Analyst
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Asia Pacific Market Open – NAFTA, Fed, RBNZ, US Dollar, NZD/USD, USD/CAD

  • US and New Zealand Dollars saw volatility on Fed and RBNZ rate announcements
  • USD/CAD held on to directional bias on NAFTA uncertainty as it reversed higher
  • Asia Pacific shares may decline after central banks highlighted fears on trade wars

See our study on the history of trade wars to learn how it might influence financial markets!

The US Dollar showed a volatile reaction after the Fed raised interest rates as expected, initially falling on an underwhelming status quo update. Afterwards, the press conference with Chair Jerome Powell sparked mild risk aversion as the S&P 500 declined and the greenback recovered. Mr. Powell brought up concerns about widespread tariffs for the global economy and their adverse impact in the long run.

Meanwhile the New Zealand Dollar initially rallied after the RBNZ left rates unchanged at 1.75% as expected and highlighted that they are seeing signs of core inflation picking up. Gains were somewhat paired though as the central bank brought up that downside risks to their growth outlook still remain. In their statement, the RBNZ also highlighted that trade barriers could undermine global growth. We still remain long AUD/NZD though given that the RBA is relatively more hawkish than the RBNZ.

One currency that was holding on to directional bias was the Canadian Dollar and it depreciated across the board. The deadline for Canada to join the new NAFTA trade pact between the US and Mexico is fast approaching. US Trade Representative Robert Lighthizer said on Wednesday that the country has until the end of this month to do so.

To add more pressure to Canada and CAD, US President Donald Trump announced that he rejected a one-on-one meeting with PM Justin Trudeau. Mr. Trump then added that he is “very unhappy” with Canada’s negotiation side and that if they don’t make a deal that “we are taxing cars”. Although shortly after, reports crossed the wires that Mr. Trudeau did not request a meeting with the US President.

Thursday’s Asia Pacific trading session is lacking key economic event risk apart from interest rate decisions from the Philippines and Indonesia later in the day. Amidst the selloff in emerging markets which has in part been due to tightening global credit conditions and trade wars, currencies from developing nations have been under serious pressure.

This is causing some of their central banks to fight back hawkishly and we may see gains from USD/IDR and USD/PHP. But those may be in vain if APAC shares decline today given the last minute pullback in the S&P 500 as the Fed was concerned about trade wars. Those risks seem to have been somewhat increased now that Canada is facing pressure. Trump is also hosting trade talks with Japan PM Shinzo Abe.

USD/CAD Technical Analysis

USD/CAD prices rose the most in a single day (+0.70%) since August 10th. The pair has also broken above a near-term descending resistance line from early September. With more confirmation, this opens the door to retesting the January 2018 line followed by 0.1.3225. On the other hand, near-term support is the 38.2% Fibonacci retracement at 1.3013.

USD/CAD Daily Chart

NAFTA Uncertainty Surpasses Fed, RBNZ Volatility. USD/CAD Reverses

Chart created in TradingView

US Trading Session

NAFTA Uncertainty Surpasses Fed, RBNZ Volatility. USD/CAD Reverses

Asia Pacific Trading Session

NAFTA Uncertainty Surpasses Fed, RBNZ Volatility. USD/CAD Reverses

** All times listed in GMT. See the full economic calendar here

FX Trading Resources

--- Written by Daniel Dubrovsky, Junior Currency Analyst for DailyFX.com

To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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