Canadian dollar buyers drove USD/CAD down to significant support at $1.3350 yesterday. It held.
Prices rebounded and closed at $1.3407 as a wave of risk aversion sentiment washed over markets. U.S. equities took a hit. The Dow Jones Industrial Average closed with a 1.31% loss after traders got spooked by the higher than expected U.S. jobless claims numbers.
Another delay in the next U.S. fiscal stimulus plan didn’t help, and neither did reports of rising COVID-19 deaths.
The negative sentiment carried forward into Asia, and then it got worse.
China ordered the U.S. consulate in Chengdu to close, retaliating for the U.S. demanding their Houston consulate be shuttered. Stock traders reacted badly and sold equities. The Shanghai Shenzhen CSI 300 index plunged 4.39%, leading the other major Asia indices lower. European bourses retreated in sympathy and U.S. equity futures are in the red.
It wouldn’t be a stretch to suggest that the overnight market selloff was more to do with prudent risk management than the start of a prolonged risk-averse period. The steep gains in equities and sharp U.S. dollar losses against the major currencies suggest the overnight moves were merely profit-taking.
EUR/USD broke above major resistance levels this week and is bouncing around either side of $1.1600. EUR/USD is in demand due to improved growth prospects for the euro area, following the European Union summit, and the coronavirus fund relief measures. Prices were supported by better than expected Eurozone and German Purchasing Managers Index data.
GBP/USD also benefited from better than expected data. Retail sales jumped 13.9% in June, compared to the forecast for an 8% gain. Manufacturing and Services PMI data beat expectations as well, which kept GBP/USD trading in a $1.2719$1.2772 range.
Safe-haven demand for Japanese yen drove USD/JPY from 106.88 to 106.18. The downside slide may have been exaggerated because Japan was closed for a holiday.
AUD/USD dropped in concert with the G-10 majors, and Australia PMI data wasn’t a factor. NZD/USD ignored a tiny dip in its June Trade balance and tracked Australian dollar moves.
There are not any actionable U.S. or Canadian economic reports today and traders appear to be biased towards profit-taking ahead of the weekend.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
