The Canadian dollar rallied since yesterday’s Toronto open, but its gains have lagged those of the commodity currency bloc. Only the Swiss franc performed worse. It is unchanged.
The U.S. dollar came under widespread selling pressure, as positive risk sentiment accelerated alongside surging global equity markets. News that biotechnology company Moderna developed a promising coronavirus vaccine, sparked the rally. The new drug is said to induce immune responses in all the volunteers in a Phase 1 study. By itself, that is good news, but the devil is in the details. These details are more concerning. The Phase 3 study will include a larger group of volunteers, and it doesn’t start until July 27.
Moderna said in its press release, "We thought the immune responses look promising, but we don’t know whether the levels we’re seeing would actually protect against infection." Perhaps equity traders have jumped the gun.
The latest "risk-on" rally also ignores rising geopolitical tensions. The U.S. has revoked Hong Kong’s special status and rejected China’s claims over the South China Sea. The Americans have sanctioned some Chinese officials over human rights violations, and continue to blame Beijing for mishandling the COVID-19 outbreak.
Australia and Canada are feuding with China, as is the U.K.. FX traders do not care.
The Bank of Japan left interest rates and policy unchanged, which was widely expected. USD/JPY continues to trade with a modestly negative bias in a narrow range.
EUR/USD is leading the G-10 currencies higher, thanks to renewed positive risk sentiment, and a break of key resistance at $1.1370. However, the rally may be short-lived due to possible adverse risks from Thursday’s European Central Bank meeting, and Friday’s European Union meeting where the COVID-19 Relief Fund is up for discussion.
The Bank of Canada policy meeting may be all bark and not bite. It is the first meeting where Governor Tiff Macklem gets to sit at the head of the table. He has previously said that he agreed with the existing BoC monetary policy and actions and is unlikely to change that stance today.
However, the new BoC forecasts will be the focus, which, like other central bank peers, are likely to emphasis caution and uncertainty.
Wall Street is poised to surge higher at the open, which if it continues will continue to support a weaker US dollar.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
