The Canadian dollar reacted positively to the news about Brexit Thursday, and is probing resistance near the 76.0 U.S.-cent level. U.K. Prime Minister Boris Johnson announced a "great new deal" while European Commission President Jean-Claude Juncker echoed with "a fair and balanced agreement." GBP/USD soared on the news.
Prices had dipped to $1.2751 in Asia but started drifting higher in anticipation of a Brexit breakthrough and were sitting at $1.2775 just before London traders got to work. In no time at all, rumours and leaks drove prices to $1.2873. The announcement kicked demand into overdrive and GBP/USD touched $1.2989. Profit-taking and the realization that the deal announcement still needs approval from Irish authorities, U.K. parliament and the EU 27 drove prices down to $1.2855 in Toronto trading.
The Brexit deal ignited a broad U.S. dollar selloff. EUR/USD blasted through resistance in the $1.1090-$1.1110 area and printed a high of $1.1139. A Brexit deal removes a lot of uncertainty in the European Union and should improve the economic growth outlook.
USD/JPY traders seemed to ignore the Brexit drama. The currency pair traded in a narrow 108.65-1.0893 band despite the improved tone of the U.S./China trade talks and a jump in 10-year Treasury yields from 1.727% to 1.78% overnight.
The U.S./China trade negotiations are still a work-in-progress. A spokesman for China’s Ministry of Commerce Gao Feng said that the Chinese were working on the text of phase 1 of the deal. Gao also said "China’s position, principle and goal for the China-U.S. trade negotiations has never changed. Both sides’ ultimate goal for the negotiations is to end the trade war, cancel all additional tariffs. This is good for China, good for the US and good for the world."
Nevertheless, the trade talks gave the antipodean currencies some support. AUD/USD rallied to $0.6788 from $0.6753 after Australian employment data was released. Australia added 14,700 jobs, in line with expectations, but the drop in the unemployment rate to 5.2% was the surprise. Gains were extended to $0.6831, where it is trading in Toronto, following the Brexit news. NZD/USD rallied in concert with AUD/USD.
Oil prices recovered about half of yesterday’s post-American Petroleum Institute (API) data losses, thanks to the news from Europe. API reported a 10-million-barrel increase in U.S. crude inventories which increased worries that supply is outstripping demand.
The Brexit news lifted U.S. equity futures which suggest a positive open for Wall Street today. Also, there are many U.S. economic reports on tap today, including the Philadelphia Fed Manufacturing Index. Canada releases Manufacturing Shipments data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
