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Canadian Dollar Accelerates Higher as Signs are Good for Trade Deal, Euro Stays Strong

Dollar selloff continues today as full-blown trade war fear receded. Yen follows as the second weakest on return of global risk appetite. Euro’s strongest pace was overtaken by Swiss Franc and Canadian Dollar. The Loonie is awaiting the Canadian Foreign Minister Chrystia Freeland’s visit to Washington. But so far, overall signs are positive. In other markets, FTSE is trading up 0.46% while DAX is up 0.30% at the time of writing. But both are kept well below day high made earlier in the session. On the other hand, CAC picks up solid momentum as the session goes and is up 0.42%. Gold is firm above 1210 thanks to Dollar’s weakness.

Whether it’s still named NAFTA or now US-Mexico Trade Agreement, the deal showed that Trump backed down from his demand of sunset clause. And it’s a signal that he’s ready for more concessions in negotiation with Canada as well as the EU. The threat of auto-tariffs on the closest allies of the US is materially reduced. Also, no matter how hard he sounds, Trump is facing tremendous domestic political and business pressures to include Canada into the deal eventually. We’ll see how it goes.

Talking about trade, US trade deficit widened to USD -72.2B in July, up from USD -67.9B and larger than expectation of USD -68.6B. US Wholesale inventories rose 0.7% mom in July. Released earlier today, Eurozone M3 money supply rose 4.0% yoy in July.

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US Mnuchin: We’ll try to get Canada on board quickly

US Treasury Secretary Steven Mnuchin said in an interview that the US-Mexico Trade Agreement is a “great move forward for trade”. Meanwhile, he, as perceived as a trade dove, added that “our objective is to try to get Canada on board quickly”. Mnuchin also acknowledged that “this is a great deal for American workers. If you remember one thing, this deal is about more trade for U.S. companies and goods and services, and that’s what we’re focused on.”

Regarding China, Mnuchin said that “We’ve been very clear. We need better market access to China we need reciprocal trade”. And, “these are issues that our allies in the G-7 agree with us on.”

San Francisco Fed: It’s 10-yr 3-mth spread that predicts most accurately, not 10-yr 2yr spread

The San Francisco Fed released an interesting economic letter titled “Information in the Yield Curve about Future Recessions” yesterday. There is noted that yield curve inversion has been a “reliable predictor of recessions”. However, the difference between ten-year and three-month Treasury rates is the most useful term spread for forecasting recessions. That is, not the ten-year and two-year yield spread that’s most referred to.

Also, the letter noted that currently, the ten-year and three-month spread is still at a “comfortable distance from a yield curve inversion.” If the paper reflects the norm of FOMC member’s thoughts, the yield curve flattening shouldn’t be much of a curve for keeping rate hikes continue.

ECB Praet: Patient, prudent and persistent monetary policy is still needed

In a speech titled Monetary and Macroprudential Policy Interactions, ECB chief economist Peter Praet said that the central bank’s monetary policy has been “effective in stabilising the euro area economy and creating conditions for a sustained adjustment of inflation towards below, but close to, 2% over the medium term.” But for now, “patient, prudent and persistent monetary policy is still needed” for the Eurozone right now.” And, at t