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“The Canadian dollar sank like a stone overnight an in early Toronto trading”. Said Rahim Madhavji, President of KnightsbridgeFX, a currency exchange company that helps Canadians get better exchange rates than the banks. The Loonie has been caught up in a wave of US dollar demand, triggered by a sudden case of the “jitters.” The minutes from the Federal Open Market Committee (FOMC) meeting of May 2 will be released this afternoon at 2:00 pm EDT. Many traders and analysts fear that they may have a hawkish bias to them and indicate a faster pace of rate hikes. The market has fully priced in a rate hike on June 13 and a 72.4% chance of another hike in September. The May 2 FOMC meeting happened before the improved tone to the China/US trade talks, suggesting their forward outlook would be cautious.
FX traders took a dim view to yesterday’s news that the June 12, North Korea/President Trump summit in Singapore may be delayed. They also weren’t very happy with the President saying he wasn’t very happy with the China/US trade talks. That uncertainty compounded nervousness over the threat of sanctions against Iran. The risk of lower global oil production raising oil prices further raised concerns about global growth. It was time to take “risk” trades off the table.
The overnight shift into risk aversion trades made the Japanese yen the best-performing currency since yesterday’s close, followed by the Swiss franc. The rest of the G10 majors, including the Canadian dollar, lost ground.
The US dollar rally accelerated after weaker than expected Eurozone and UK data releases. Eurozone and German Markit Manufacturing reports were below forecasts. Traders feared that sluggish growth would keep the ECB on hold even as the Fed raises rates. EURUSD dropped to 1.1695 from 1.1788 and is trading at the low.
UK inflation data was below expectations. April CPI rose 2.4%, y/y (Forecast 2.5%, y/y) and GBPUSD crashed, falling from 1.3431 to 1.3314 in early New York trading. UK PPI and House Price index reports were also disappointing, fueling the losses.
This morning’s US data includes Markit PMI which is not usually a factor for FX traders. Profit taking may lift prices higher into the London close.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
