The Canadian dollar won the blue ribbon for the best performing major G-10 currency in July. It only lost 0.42% against the U.S. dollar, from where it finished in Toronto on June 28 and where it opened today. That is a far better performance than the British pound. The election of Boris Johnson as U.K. Prime Minister and the ensuing elevated risk of a "no-deal" Brexit fueled a 4.2% drop in GBP/USD. Dovish central bank policies were behind the drop in the euro, and Australian and New Zealand dollars.
The U.S. dollar opened in Toronto on a mixed note. Traders were reluctant to get involved ahead of this afternoon’s Federal Open Market Committee (FOMC) meeting. However, month-end portfolio re-balancing demand and important economic data releases pulled them off the sidelines.
The China/U.S. trade talks ended without any headlines proclaiming progress, let alone a breakthrough. China released mixed to better Purchasing Managers Index data. Manufacturing PMI for July was slightly better than forecast while Non-Manufacturing PMI was a tad worse than expected.
In Australia, higher than expected Q2 Consumer Price Index (Actual 1.6% y/y vs forecast 1.5%) and month-end demand boosted AUD/USD, which rose from $0.6589 to $0.6617. The data suggested that the Reserve Bank of Australia could be less hasty in easing monetary policy further. The New Zealand dollar wasn’t as fortunate. NZD/USD dropped following a disappointing Consumer Confidence Survey.
The Japanese yen meandered inside a narrow band. Traders are torn between the Bank of Japan’s dovish economic outlook and fears of a less dovish than expected FOMC result today. U.S. Treasury yields were steady and didn’t provide any direction.
EUR/USD traders were busy thanks to a slew of economic data releases. German June Retail Sales rose 3.5% (forecast 0.5%), and employment was as expected. Eurozone GDP at 1.1% y/y was better than forecast but below the previous result of 1.2% y/y. Inflation results were mixed. Headline CPI rose 1.1%, as expected but Core CPI rose only 0.9% y/y. (Forecast 1.0% y/y). Analysts suggested that today’s results will support the European Central Bank’s easing bias.
Canadian dollar traders are eagerly awaiting May GDP data which is forecast to rise 0.1% compared to a 0.3% rise in April. The dip is explained by a combination of poor weather, lower Retail and Wholesale volumes and sluggish home sales. Industrial Product Price and Raw Material Price data are also on tap.
Today’s U.S. data includes the Chicago PMI survey and ADP employment. It should not have much impact on FX trading ahead of the afternoon’s FOMC decision.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians