The Canadian dollar melted down following a fresh wave of coronavirus fears.
Friday, USD/CAD hit $1.3518 at the start of the session, and by mid-afternoon traded at $1.3645.
The steep rise was due to fears of a second wave of COVID-19 cases in the U.S.. Those fears were exacerbated on the weekend with news that Beijing discovered 51 new COVID-19 cases since June 12. That number should be viewed in the context of Beijing’s 21.5-million population.
In addition, U.S. officials announced an increase in coronavirus cases requiring hospital stays in states such as Arizona, Alabama, Texas, and Florida. It is no surprise considering those states had very high numbers of residents who could not grasp the concept of social distancing, or wearing masks, and gloves.
Chinese Industrial Production and Retail Sales data for May did not help sentiment. Retail Sales were a tick weaker than forecast, falling 2.8% y/y while Industrial Production rose 4.4% compared to the 5.0% predicted. Nevertheless, the reports were much better than April’s results which suggest the Chinese economy is recovering, albeit slowly.
AUD/USD reacted to China data poorly. Prices dropped from Friday’s closing level of $0.6870 to $0.6778, before recouping nearly half of those losses in early Toronto trading. NZD/USD suffered a similar fate, falling from $0.6449 to $0.6382, but it managed to scrape back nearly all its losses. Both currency pairs are vulnerable to Chinese economic growth sentiment due to close trade ties. Global equity weakness to start the week was due to concerns that the expected global economic recovery would take longer than previously thought.
Antipodean currency selling pressure knocked the Canadian dollar lower as well as it is also considered a commodity currency, and oil prices were sinking. West Texas Intermediate (WTI) has been sliding since June 10 after the Energy Information Administration reported a 5.4 million barrel rise in crude inventories.
Concerns about a coronavirus second-wave outbreak drove crude prices down because it suggests weaker global demand from a delayed recovery. WTI needs to break above $35.60 to alleviated the selling pressure, for today.
Federal Chair Jerome Powell’s testimony to Congress on Tuesday will be watched to see how he responds to questions. Analysts will be looking to see if he walks back from the extremely dovish FOMC outlook.
Canadian Manufacturing Sales for April are on tap today and expected to drop 18.7%.
FX traders will ignore the news as a weak report is expected, due to coronavirus lockdown measures.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
