The Canadian dollar is finishing August as the best performing commodity bloc currency compared to the greenback. It lost 0.58% from its August 1 opening level and today’s open. That was a stellar performance when compared to the New Zealand dollar, which shed 4.0% of its value. NZD/USD was hammered when the Reserve Bank of New Zealand slashed interest rates by 0.50% to 1.00% on August 7.
The Japanese yen and Swiss franc posted gains do a wave of risk aversion sentiment that permeated FX markets for most of the month. The British pound gains were due to U.K. politics with some traders believing that all the bad news for the currency is reflected in the current prices.
Asia FX markets were busy. Weaker than expected Building Permits data knocked NZD/USD lower in early trading, but prices recovered most of their losses in Toronto trading. AUD/USD had a similar experience. Soft Australia Building Permits data undermined the currency pair early, but it managed to recoup most of the losses by the start of trading in Toronto.
USD/JPY bounced erratically in a tight trading band with prices supported by a steepening of the U.S. Treasury yield curve. Japanese economic data releases had a short-lived impact.
EUR/USD traders who were on holiday for all of August would have returned to work today to find the single currency unchanged from where they left it on August 1. EUR/USD inched lower overnight and is trading at the session lows. There is a negative bias due to improved risk sentiment following the improved U.S./China trade talk tone. Concerns that the Eiuropean Central Bank will introduce new monetary policy stimulus in September will cap gains.
The Canadian dollar was largely ignored in overnight markets and is currently trading where it closed yesterday. Traders are looking ahead to today’s Canada Gross Domestic Product, Raw Materials and Industrial Price data. GDP is the most important. Q2 GDP is forecast to rise 3.0% q/q while June GDP is expected to rise 0.1%. Stronger-than-expected data will boost the currency. However, broad U.S. dollar demand and month-end portfolio re-balancing flows may limit Canadian dollar gains.
There is a host of US data available today including, PCE, Chicago Purchasing Managers Index and the Michigan Consumer Sentiment Index. Better-than-expected data will underpin the greenback as it reduces the incentive for the Fed to cut interest rates aggressively.
FX traders will be looking to get an early start to the long weekend holiday in the U.S. and Canada. The first week of September will be busy. The Bank of Canada policy meeting is Wednesday while U.S. and Canadian employment reports are due Friday.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
