The Canadian dollar is poised to close out May with a 2.1% gain against the U.S. dollar, since the beginning of the month. However, its performance lags that of its Antipodean cousins. The Australian dollar gained 3.3% and New Zealand dollars gained 2.3% respectively. The British pound was the worst-performing major G-10 currency losing 2.1%, mostly due to fears that the E.U./U.K. trade negotiations will fail.
Canada’s April Gross Domestic Product data, as ugly if as ugly as expected will not have much impact on Canadian dollar trading. That’s because it is all due the COVID-19 pandemic lockdown, and the rest of the G-10 nations are suffering a similar fate.
The U.S. dollar is suffering from month-end portfolio rebalancing. Portfolio managers, enjoying over 3% gains in the Dow Jones Industrial Average, and S&P 500 Indexes, need to sell U.S. dollars to bring their portfolio’s into line with their benchmarks. Those flows helped to drive GBP/USD from $1.2292 to $1.2366 and USD/CAD from $1.3792 to $1.3734, in early Toronto trading.
The month-end flows may be masking risk aversion demand for U.S. dollars as China/U.S. tensions continue to ratchet upwards. President Trump has attacked China relentlessly over what he sees as Beijing’s failure to adequately manage the COVID-19 outbreak, while deliberately downplaying its seriousness. He ramped up his attacks after Beijing took measures to quell unrest in Hong Kong. The U.S. State Department said HK is no longer autonomous from China, which puts HK’s special U.S. trade status in jeopardy. Trump said he would announce new sanctions on China today.
Eurozone economic data was weak. German Retail Sales fell 5.3% in April, which was better than expected but it shows the toll the pandemic is exacting. Eurozone inflation rose a mere 0.1%, raising the risk of deflation which led to predictions of new European Central Bank monetary stimulus being announced next week. EUR/USD gains may lead to EUR/CAD demand.
GBP/USD tracked EUR/USD higher with month-end portfolio rebalancing flows fueling the move. However, ongoing concerns about EU/UK trade talks may limit gains.
Today’s Michigan Consumer Sentiment Survey may give positive risk sentiment a lift if it surprises to the upside, although Trump’s press conference will overshadow the data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
