The Canadian dollar is a bystander even as the U.S. dollar retreats against Sterling and the euro in early Toronto trading. GBP/USD rallied sharply on Boris Johnson’s first official day as Prime Minister of the U.K. with prices rising from $1.2428 to $1.2521 in early Toronto trading.
The rally may be a classic "short-squeeze" as traders scramble to protect profits. Some analysts believe that the bad news is fully priced in while others are concerned that a "no-deal" Brexit will lead to losses below $1.2000.
The GBP/USD rally underpinned EUR/USD, albeit modestly. The single currency is trading at the top of its overnight $1.1128-54 range, but further upside may be limited ahead of Thursday’s European Central Bank meeting. The ECB statement may be more dovish than expected due to a slew of weak economic reports in the past month. This morning, preliminary Markit Manufacturing Purchasing Managers Index data from France, Germany, and the eurozone was weaker than forecast.
The GBP/USD and minor EUR/USD rallies were good news for Canadian dollar bulls. USD/CAD drifted from $1.3144 to $1.3129 in early Toronto trading.
The loonie was undermined (slightly) in Asia because of AUD/USD and NZD/USD selling pressures. The CBA preliminary Australian Manufacturing PMI report was below forecasts which weighed on AUD/USD. Prices accelerated lower after Westpac Bank economists warned that the Reserve Bank of Australia might be forced to cut interest rates by 0.50% by the start of 2020. The cuts are necessary because the jobless rate and wage growth are below the RBA’s forecasts. AUD/USD dropped from 0.7007 to 0.6974 on the news and is trading close to the bottom of that range in Toronto.
The New Zealand dollar got a little benefit from better than expected trade data. The trade deficit narrowed, and NZD/USD managed to recoup overnight losses by the time Toronto opened.
FX traders dismissed news that the U.S./China trade talks would resume on Monday when U.S. Trade Representative Robert Lighthizer and a team travel to Beijing. Equity traders liked the trade news, which is why the Shanghai Shenzhen CSI 300 index climbed 0.79%.
The International Monetary Fund (IMF) suggested that the trade war has taken a bigger toll on China than the U.S.. The IMF wrote: “In China, the negative effects of escalating tariffs and weakening external demand have added pressure to an economy already in the midst of a structural slowdown and needed regulatory strengthening to rein in high dependence on debt.”
Today’s Canadian dollar direction will track that of broad U.S. dollar moves. There aren’t any domestic economic reports available and only second-tier data available from America.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
