The Canadian dollar is inching higher, alongside widespread U.S. dollar losses against the G-10 currencies. The U.S. dollar is unwanted and unloved. Rising U.S. coronavirus cases in contrast with reduced Euro area infections has elevated eurozone economic growth prospects above those of America. Just as new COVID-19 cases appear to plateau in the Sunbelt states, Midwest states are seeing an increase. There were 59,588 cases reported yesterday, well below last Friday’s 74,039 cases but still well above the average at the beginning of June.
The U.S. dollar is also suffering due to uncertainty around a new fiscal stimulus plan to replace the CARES Act, which ends Friday. Also, the U.S. election is just 97 days away, and Trump is at risk of being a "one-term" President.
Month-end portfolio re-balancing flows are weighing on the greenback. U.S. equity market performance in July suggests portfolio managers will need to sell U.S. dollars.
The Federal Open Market Committee meeting statement is unlikely to cause much of a stir. The Fed made a year’s worth of policy changes in March, and they will want to see a lot more data before they change anything.
Fed Chair Jerome Powell will be cautious but suggest that the economy will rebound over the coming months.
EUR/USD ran out of gas at $1.1769 and dropped to $1.1715 overnight. Prices slipped to $1.1730 in early Toronto trading, but if they stay above $1.1702, the topside is vulnerable. A break below $1.1702 would lead to $1.1625. Traders may be reluctant to drive prices higher until the results of the FOMC meeting are known.
The U.S. dollar index (USDX) dropped continues to flirt with support in the 93.15-30 zone, but unless it is broken decisively, the risk of a rebound is high. However, the longer-term technicals are bearish, which is weighing on the US dollar and supporting the Canadian dollar.
XAU/USD prices plunged after prices posted another record high at $1981.08 yesterday.
They rebounded overnight but capped out at $1,963.72, in part because some Chinese banks adopted measures to reduce speculation.
Concerns about stubbornly high COVID-19 cases in the US and low global interest rates are supporting prices. FX markets will trade cautiously and quietly until this afternoons FOMC meeting is over.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
