The Canadian dollar snapped a nearly two-week uptrend, following a surge of U.S. dollar demand during the European session. USD/negative n Asia, as oil and gold prices slid. USD/CAD soared, and then accelerated in Europe after weak German Gross Domestic Product data.
German Q2 GDP fell 10.1%, the worst performance ever. It shouldn’t have been a surprise to anyone, as the impact of measures to combat the coronavirus pandemic were well known.
Nevertheless, EUR/USD dropped from $1.1792 in Asia to $1.1732. Prices inched higher in early Toronto trading. The weak data served notice that the economic ramifications from COVID-19 will be around for a while, leading to some traders taking profits after EUR/USD rise this week.
The U.S. Federal Open Market Committee delivered what the market expected. It left policy unchanged and appeared content to wait and see the impact from their earlier measures and the Federal government's stimulus packages. The statement declared "The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term."
U.S. interest rates will not be changing any time soon. The statement said: "The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Powell further clarified that stance in the press conference. He said "we are not even thinking about interest rates. The economy will need our support for an extended period."
GBP/USD found a bottom at $1.2946 just before Europe opened, then climbed to $1.3010 following the German data. Sales of EUR/GBP fueled the rally. GBP/USD is holding those gains in early New York trading, awaiting the upcoming U.S. data.
AUD/USD and NZD/USD were reasonably steady until just before Europe started. Weaker than expected Australia building permits data, combined with soft commodity prices, and renewed 2nd wave pandemic fears, sent prices tumbling.
Traders may react negatively to U.S. Q2 GDP falling 34.2%, as forecast. The economy is expected to have been trashed thanks to the pandemic, but seeing the number may spook markets.
U.S. jobless claims are forecast at 1.45 million, higher than last week and evidence U.S. growth is stumbling.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
