The Canadian dollar continued to consolidate Wednesday’s losses after the Bank of Canada appeared to change its monetary policy outlook.
Traders are looking for this mornings release of November Retail Sales data to provide further clues about the domestic economy. Analysts expect that the details will show a 0.4% m/m rise, which would be a vast improvement over the 0.5% decline seen in October. If so, it may spark some Canadian dollar demand.
FX markets were lively overnight. New Zealand reported a higher inflation reading which gave NZD/USD a lift. New Zealand Consumer Price Index rose 1.9% q/q in Q4, handily beating the previous result of 1.5%. NZD/USD rallied from yesterday’s low of $0.6528 to $0.6627 and outperformed its Antipodean cousin. AUD/USD rose from $0.6836 to $0.6856 even though Australia’s Manufacturing, Services, and composite Purchasing Managers Index reports were mixed.
FX volumes were lower than usual due to the start of the Chinese New Year holidays. This year’s festivities will be impacted by the Wuhan coronavirus, which has led to travel bans for around 25 million people. To give it some perspective, the number of people affected by the travel restrictions represents just under 70% of the population of Canada.
USD/JPY price action was contained in a 109.45-109.64 range. Prices were supported by broad US dollar demand. However, falling U.S. Treasury yields, residual safe-haven demand for yen, and bearish technicals looking for further losses to 108.50, capped gains.
EUR/USD added to yesterday’s post-European Central Bank policy meeting losses. The single currency saw a brief spurt of demand in early European trading when German, and Eurozone PMI reports were slightly better than forecast. The gains were short-lived as both reports pointed to a eurozone economy that was still shrinking. EUR/USD traders were not impressed by the European Central Bank meeting which left policy unchanged. The deposit rate remains a negative 0.50%, and they will continue with monthly asset purchases. Analysts do not expect any change until 2021. EURUSD dropped from $1.1107 yesterday to $1.1029 in early Toronto trading.
GBP/USD is choppy. Prices bounced erratically in a 1.3081-1.3171 range. The topside was tested when UK Markit Manufacturing PMI jumped to 49.8 from 47.5, and Service PMI rose to 52.9 from 50.0. The rally quickly reversed under the weight of bearish technicals, the looming official Brexit, and UK coronavirus fears. GBP/USD is trading at the bottom of its overnight range in Toronto.
The Canadian dollar is also underperforming due to the steep drop in oil prices since the coronavirus became and issue. West Texas Intermediate has lost 5.8% since Monday’s Toronto open.
Today’s U.S. economic reports are second-tier and not likely to be a factor for FX markets. Instead, the U.S. may be vulnerable to profit-taking selling ahead of the weekend.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
