The Canadian dollar took flight in a somewhat uneven trading session overnight. Canadian dollar sellers were evident in Asia, in part because of NZD/USD selling pressures. The New Zealand currency came under pressure after an economist at Westpac Bank predicted the Reserve Bank of New Zealand would cut the Overnight Cash Rate (OCR) from 0.10% to negative territory before year-end. That news came on the heels of other technical FX trading strategies that suggested buying AUD/CAD.
Canadian dollar selling pressure abated suddenly when the European session got started. Suddenly everyone wanted it. The currency recouped all its Asia losses and then accelerated higher just before Toronto opened. The USD/CAD plunge from $1.4071 to $1.3948, was exacerbated by stop-loss selling on the break of the $1.3990-$1.4005 support area.
The Canadian dollar rally is all due to month-end portfolio re-balancing flows, as mangers get a jump on Thursday’s official 11:00 am EDT month-end fixing. Many equity portfolio managers need to readjust their hedges at the end of every month to ensure they are in compliance with their mandates. The April 10%+ rally in the S&P 500 index suggests managers will need to sell U.S. dollars.
The Canadian dollar rally was part of a broad U.S. dollar selloff overnight, and the bulk of the moves can be attributed to portfolio rebalancing flows. However, the easing of lockdown restrictions in Spain, France and Italy has improved FX risk sentiment, as well. GBP/USD climbed to $1.2517 from $1.2406, despite a very weak CBI Distributive Sales survey and ongoing concerns about the EU/UK trade talks.
EUR/USD tracked Sterling higher. Prices rose steadily from $1.0657 to $1.0733 but retreated in early Toronto trading. Sweden’s Riksbank left interest rates unchanged at 0%. The governor said he didn’t think further rate cuts would help stimulate the economy, which contradicts the European Central Bank outlook.
Traders are looking ahead to the U.S. Federal Open Market Committee meeting and do not expect much of a show. The Fed acted aggressively and often in March, which suggests that Wednesday’s meeting will take a "wait-and-see approach.
The New Zealand dollar was hammered in Asia, falling from $0.6048 to $0.5994 after Westpac Bank predicted the RBNZ would opt for negative interest rates before the end of the year. Those losses were reversed prices rose to $0.6071 in Toronto.
Traders will continue to focus on month-end portfolio flows and economy re-opening headlines today while ignoring U.S. and Canadian economic data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
