Here’s our take on the coming weeks:

As summer winds down, fears of a U.S. recession are present in the yield curves. But how real is it?

Our very own loonie, fares pretty well for now, while the USD, still going strong, gets bounced around a bit.

How low can the EUR go? That is the question.

The GBP, on a roller-coaster ride, could still manage to surprise.

The yuan, meanwhile, is on the defensive after sinking to new lows…

RATES

The summer ends with U.S. yield curves going through an inversion, prompting fears of a recession.

Indeed, the last time short-term yields were higher than long-term ones were in… 2007, the last major recession.

But still, what we see could be more of an overreaction of the markets.

Indeed, as shown here in our graphic comparing 3-months and 5- y Canadian Interest Rates Swap (IRS), long-term rates are also cheaper than short-term rates.

This could mean that the market, in , anticipates a rate cut, even though the consensus is that the won’t budge until October 2019 at the earliest, if at all.

So, the market is more bearish than the BoC. This results in a situation where companies that need to extend their lines of credit might find it q uite profitable to go for a 5 -y fixed rates.

CAD

Compared to other G7 currencies, the loonie has had a good run these past few weeks, being carried by both a strong domestic economy and stable oil prices.

It’s hurricane season down south, which shot most Canadian oil blends up above the CAD 50 mark.

Also, a strong GDP growth in Q2, at an annualized rate of 3.7%, was helpful in keeping the USDCAD pair around the 1.3300 region. Also helping is the fact that the Bank of Canada, though cautious, shouldn’t move on rates before its counterparts in the G10 world. Things to watch for in the coming weeks is how much more resilient Canada will be compared to other countries which struggle against economic sluggishness.

Source: Reuters Eikon

USD

Still going strong, the USD has been slapped around a bit in August. The DXY US Dollar Index fell from the 98.500 area to the 97.300 zone, only to climb back above the 98.800 mark as September starts.

This is not only because of Donald Trump’s tweeting tantrums: things are getting kind of uglier by the day around the world, what with the Chinese -American conflict escalating, the Old Countries grinding to a halt and China’s weakening exports along with its currency.

Not to mention that, as pretty much everything but Christmas thingamajigs and baby diapers are hit with tariffs, recession looms in the U.S. as well.

So, regardless of what Mr. Trump wants for the USD, it might well continue to rise as the global economy sinks. Especially since American investors, the main drivers of USD demand, are cutting exposure outside the U.S. and piling greenbacks galore.

Source: Reuters Eikon

EUR

The single currency, meanwhile, plunged against the USD as the European Central Bank signals it may get aggressive about quantitatively easing the rut Europe finds itself in.

The EURUSD pair is entering September under the 1.1000 bar, a sure sign that things aren’t looking good.

Dire numbers from Germany, hurt by a cratering Chinese car market and the Trumpian wars, are fueling speculation that a potential rate cut is in play for the ECB.

Source: Reuters Eikon

GBP

The Pound Sterling isn’t doing very well either, especially with the threat of a no deal Brexit in the cards for new Prime Minister Boris Johnson, a Brexiteer if there ever was one.

The prospect of an economically damaging withdrawal from the EU makes the GBP quite volatile for the foreseeable future.

Meanwhile, the GBPUSD pair got floored at 1.2000 in August, a 2 1/2-year low.

On the bright side, what more can go wrong? The market has priced a potential crash, and Boris Johnson’s threat to shut down the Parliament to get his way could hit a wall.

Indeed, MPs opposed to a 'no deal' Brexit argue they can take over and force the issue on PM Johnson.

And so the GBPUSD pair enters September in the 1.2200 zone, where it is considered quite cheap by many, who think the littlest bit of good news could lift the currency’s spirit.

Source: Reuters Eikon

CNY

The yuan is walking on thin ice.

The USDCNY pair spent the best part of August well over the 7.000 mark, even starting September above 7.1500.

Hence the ‘’currency manipulator’’ tweets, and the subsequent trading of barbs between Washington and .

Struck by another punitive wave of tariffs on USD 300 billion worth of goods, the Chinese currency weakened for 11 days straight against the US dollar, the most prolonged slump on record. And a 10-year low. The People’s Bank of China is trying to stem the tide, especially since it uses the USD for its international commitments.

And as the 70 th anniversary of the People’s Republic of China is near, there is little hope that China will give anything. And there isn’t anything certain about what Mr. Trump does or say, let alone thinks.

So, brace for impact.

Source: Reuters Eikon

OUR MONTHLY READS

HOW CANADIAN COMPANIES ADAPT TO THE TRADE WARS

With the trade wars in full swing, some Canadian multinational retail firms are finding ways to get around global trade chaos, writes the Financial Post in a 3-part Trade War Series.

One way to do that is to lower expectations and being very cautious about cost structure. https://business.financialpost.com/news/economy/trade-wars- retail

WHAT PEOPLE HATE ABOUT BEING MANAGED WITH ALGORITHMS

Companies are increasingly using algorithms to manage their remote workforces.

Called “algorithmic management,” this approach, used by UBER, substantially increases efficiency by managing some three million workers with an app that instructs drivers who passengers to pick up and which route to take.

Here’s what they—and workers from other companies—hate about it, reports the Harvard Business Review. https://hbr.org/2019/08/what-people-hate-about-being-managed- by-algorithms-according-to-a-study-of-uber-drivers

RBC AND TD FINED $24 MILLION FOR FOREX FAILINGS

“RBC and TD had the ability and means to properly monitor use of technology with known compliance risks in their FX trading, yet for more than three years, they failed to adequately do so. As a result, traders were free to engage in self-serving behavior that put the banks’ economic interests ahead of their customers, other market participants and the integrity of the capital markets”, found the Securities Commission. https://www.osc.gov.on.ca/en/NewsEvents_nr_20190830_rbc- and-td-pay-more-than-24-million-for-foreign-exchange- compliance-failings.htm

If you have any questions, please contact us.

Have a great day.

FINMETRIX