The Canadian dollar added to losses in an uneventful overnight session. USD/CAD climbed from $1.2380 on Wednesday morning to $1.2478 in early Toronto trading today ahead of the U.S. and Canadian employment reports for October.
The Canadian dollar slump is due to a somewhat more-hawkish-than-expected meeting of the U.S. Federal Open Market Committee coupled with a drop in crude oil prices, and broad U.S. dollar demand against the G-10 major currencies.
The Fed said it would begin tapering asset purchases to the tune of $15.0 billion per month. At that pace, the coronavirus pandemic monetary stimulus will be fully removed by June 2022. That news was expected but the surprise was Fed Chair Jerome Powell’s failure to push back against market pricing of rate hikes as soon as May or June 2022.
The U.S. dollar surged on the news and consolidated those gains overnight. However, bond traders appear to be less concerned. U.S. 10-yyear Treasury yields have fallen from 1.60% to a low of 1.522% overnight.
Traders expect non-farm payrolls to rise 425,000 in October and for the unemployment rate to trick down to 4.7% from 4.8%. Stronger-than-expected data will reinforce speculation that the Fed will be forced to raise rates earlier than anticipated which should give the greenback additional support.
Canada’s is expected to have added 19,300 jobs, compared to September blockbuster 157,100 gain. It is still a positive as it would be the fifth consecutive increase. In addition, Canada Ivey Purchasing Managers Index data is expected at 62.7.
USD/CAD will face major resistance in the $1.2500-05 area, around the 10:00 am option expiry window, when $1.32 billion of strikes expire.
EUR/USD traded defensively and is sitting at the bottom of its overnight $1.1533-$1.1562 range. Weaker than expected German Industrial Production data (actual -1.1% m/m vs forecast 1.0%) and soft Eurozone Retail Sales (actual -0.3%m/m vs forecast 0.2%m/m) weighed on prices. European Central Bank policymakers Luis de Guindos and Yannis Stournaras weighed in with claims inflation pressures were temporary.
The EUR/USD technicals are bearish below $1.1650.
GBP/USD continues to suffer after the Bank of England (BoE) surprised markets and left interest rates unchanged. GBP/USD plunged from $1.3650 to $1.3470 following the monetary policy statement and extended those losses to $1.3426 in early New York trading.
USD/JPY traded in a 113.57-113.86 range, with the currency pair pressured by the latest drop in U.S. Treasury yields. The Japanese government is considering minor fiscal stimulus in the form of cash payments to those under 18.
AUD/USD is at the bottom of its $0.7370-$0.7407 range after the RBA Quarterly Statement on Monetary Policy reaffirmed the central bank’s dovish outlook. NZD/USD retreated due to broad U.S. dollar demand.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
