China and Hong Kong tensions fanned risk aversion flames, as did China’s trade spat with Australia. The Chinese government is incensed with Australia’s demand for a coronavirus inquiry, and is using its massive trade clout to express its displeasure. Recently, China slapped an 80% tariff on imports of Australian barley while rumoured to be considering tariffs on dairy, wine, and seafood. China’s actions may limit AUD/USD upside. However, the currency pair remains in an uptrend while prices are above $0.6440.
NZD/USD was underpinned after New Zealand Prime Minister Jacinda Ardern announced further easing of COVID-19 restrictions. It is now permissible to hold gatherings of up to 100 people.
The Canadian dollar outperformed the other commodity bloc currencies in a subdued overnight session as rising oil prices continue to support gains. Domestic economic data is not playing much of a role in providing traders with direction.
Instead, Wall Street price action and general U.S. dollar sentiment continue to drive currency moves.
Bank of Canada Governor Stephen Poloz delivers the final speech of his tenure. He retires on June 2, to be replaced by Tiff Macklem. The title of the speech is "Monetary Policy in Unknowable Times" and is scheduled for 1:30 p.m. EDT. Last week, the Governor said he thought the outlook for the economy was better than what was being reported in the press. He said "I do think that, on balance, the flow [of pessimism] that I’m hearing is a little too dire. It’s a little overblown." He argued that analysts were too preoccupied with the drop in Gross Domestic Product. He said the drop occurred because the "government turned off the economy. So afterwards, when we turn the economy back on – which we’re just beginning to do – you should see a very rapid return of production."
The Canadian dollar is also benefiting from mildly bearish USD/CAD technicals. USD/CAD is in a downtrend below $1.4105, a level which is guarded by resistance at $1.4050.
A break below $1.3950 would extend losses to $1.3870.
Elsewhere, EUR/USD was in demand, albeit modestly, rising from $1.0871 to $1.0907.
Prices were supported by slightly better than expected German IFO data. The Institute said "sentiment among German companies has recovered somewhat after a catastrophic few months. The ifo Business Climate Index rose from 74.2 points in April to 79.5 points in May. Even though companies once again assessed their current situation as slightly worse, their expectations for the coming months improved considerably. Nevertheless, many companies are still pessimistic about their business. The gradual easing of the lockdown offers a glimmer of hope."
FX markets will be quiet due to the U.S. holiday, and the economic calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
