The Canadian dollar consolidated its recent gains overnight, with prices tracking closely to broad U.S. dollar moves. Global equity indices traded mixed in an uneventful session. Japan’s Nikkei 225 was down while Hong Kong’s Hang Seng index rallied. European equity indices are flirting with flat to slightly lower while S&P Futures are pointing to a positive open on Wall Street.
In Asia, AUD/USD rallied from $0.6417 to $0.6450 following a surge in March Retail sales which rose 8.5%. NZD/USD chased AUD/USD higher thanks to a modestly positive employment report.
Both currencies continue to be supported by government plans to create a "travel bubble" between the two nations, to help expedite post-coronavirus trade normalization.
USD/JPY is being pulled in opposite directions, and the dollar bears have the upper hand. President Trump’s hostile rhetoric towards China and his earlier threat to re-introduce trade tariffs spark a bit of safe-haven demand for yen. A rebound in U.S. Treasury yields tempered USD/JPY losses.
FX traders are also looking ahead to upcoming event risk. The Bank of England monetary policy meeting is Thursday and Canadian, and US employment reports are due Friday. Those risks have underpinned the greenback.
In Europe, EUR/USD dropped to $1.0783 from $1.0844, immediately following the release of the European Commission Spring forecasts. It wasn’t pretty. The E.C. "projects that the euro area economy will contract by a record 7¾% in 2020 and grow by 6¼% in 2021." They also warned of an uneven recovery, noting "Given the interdependence of E.U. economies, the dynamics of the recovery in each Member State will also affect the strength of the recovery of other Member States." A rash of weak economic data from Germany and the Eurozone added to the selling pressure. However, prices have recovered slightly in early Toronto trading.
GBP/USD dropped alongside the single currency after the E.C. forecasts were released. U.K. April Construction Purchasing Managers Index dropped to 8.2, well below the 22 predicted and 39.3 seen in March, which also undermined the currency pair. The Bank of England monetary policy meeting is Thursday with traders awaiting updated economic forecasts.
FX traders are cautious as Canadian, and U.S. employment reports are released, Friday. The U.S. is expected to lose 22 million jobs, with the unemployment rate surging to 14%. The Canadian data may be a tad uglier as Canada unemployment is projected to rise to 16%.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians.
