The Canadian dollar opened in Asia on a firm footing. The greenback was steady, hovering above multi-month lows against the major-G-10 currencies. The S&P 500 recouped all its pandemic losses and was back to posting gains, year to date. Still, there were warning signs of things to come.
USD/JPY dropped from 109.69 on Monday, to close in NY at 108.42. That move occurred on the back of falling US Treasury yields.
The selling pressure continued in Asia, and AUD/USD traders took note. AUD/USD has been on a tear since the end of May. The rally stalled in the $0.7040-50 area which contained gains since January. Prices started sliding, and when support at $0.6980 was breached, stop-loss selling accelerated the move lower, until finding a bottom at $0.6900. NZD/USD mirrored the Aussie moves. There wasn’t a specific catalyst to spark the selling but the combination of caution ahead of tomorrow’s U.S. Federal Open Market Committee meeting and an extremely overbought technical profile certainly weighed on sentiment.
EUR/USD jumped on the bearish bandwagon, and prices sank to $1.1242 from $1.1314. Weak German and eurozone economic data didn’t help. German trade numbers were poor with exports falling 24%.
Eurozone Q1 Gross Domestic Product fell a worse-than-expected 3.6% y/y.
GBP/USD fared worse than the single currency. GBP/USD plunged from 1.2755 to 1.2620. Monday, GBP/USD rallied alongside a rise on Wall Street with U.K. Health Secretary Matt Hancock giving the currency an added lift. He said, "the coronavirus is in retreat across the country."
The currency pair was unable to break the $1.2750-$1.2760 area, which provided solid support from October to March 2020 and capped rallies in April and May.
The Canadian dollar tracked the broad U.S. dollar moves against the G-10 majors, but oil prices also played a role. West Texas Intermediate peaked at $40.50 U.S./barrel yesterday following the Organization of the Petroleum Exporting Countries and OPEC friend’s decision to extend oil production cuts until August 1.
Earlier in the week, traders were expecting an extension until September, so they were mildly disappointed. At the same time, U.S. Shale producers said they would reopen some shuttered wells which helped limit gains. Profit-taking ahead of Wednesday’s Fed meeting drove prices to $38.84 in Europe before they bounced to $37.22 in Toronto trading.
The Canadian dollar direction continues to be dictated by U.S. dollar sentiment, and to a lesser extent, oil price moves. U.S. equity futures were pointing to a negative open on Wall Street, which, if it continues, will underpin the greenback while undermining the Canadian dollar.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
