The Canadian dollar stayed consistent despite volatile FX price action overnight. News that Iran launched missile strikes at U.S.-occupied bases in Iraq sent Asia traders scurrying for safe-haven assets. The Swiss franc and Japanese yen soared as did gold, bond, and oil prices. Asian equity indices sank.
USD/JPY plunged to 107.66 from 108.46 while US 10-year Treasury yields dropped from 1.82% to 1.74%. Those moves reversed as quickly as they occurred. Within an hour, USD/JPY was back to 108.45 and then continued to climb steadily, reaching 108.80 in early Toronto trading. The 10-year Treasury yields rebounded as well and are trading at 1.82%.
President Trump’s rather calm tweet after the missile attack, fueled the unwind of safe-haven trades as he didn’t sound too concerned. He said
"All is well! Missiles launched from Iran at two military bases located in Iraq. Assessment of casualties & damages taking place now. So far, so good! We have the most powerful and well-equipped military anywhere in the world, by far! I will be making a statement tomorrow morning.”
The New Zealand dollar outperformed its Australian counterpart overnight. Both currency pairs sank on the Iran news, but NZD/USD rallied more aggressively than AUD/USD. That was due, in part to divergent central bank monetary policy outlooks. The Reserve Bank of New Zealand appears to be on hold, with a neutral bias while the Reserve Bank of Australia maintains a dovish outlook.
European traders preferred to focus on domestic economic data while waiting for President Trump’s statement today. EUR/USD data was mostly soft as German Factory orders fell 6.5% y/y in November and eurozone Confidence and Sentiment indicators were weak. EUR/USD declined steadily, dropping from $1.1153 to 1.1114 in Toronto, with prices undermined by bearish technicals.
Sterling was a big mover, again. GBP/USD traders are already skittish due to Brexit and concerns about U.K. Prime Minister Boris Johnson’s approach to negotiations now that he leads a majority government. GBP/USD sentiment was negative after prices failed to extend gains above resistance at $1.3330 and the subsequent drop below $1.3180.
The Canadian dollar is bouncing between support at the USD/CAD level of $1.2950 and resistance in the $1.3030-50 area. The bullish Canadian dollar outlook is supported by the Federal Open Market Committee’s forecast for unchanged interest rates in 2020 and by the rise in WTI oil prices. Canadian dollar bears point to the risk of weakening economic data and long term bearish Canadian dollar technicals.
There are not any economic reports of note due today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
