The Canadian dollar rallied overnight and extended gains in early Toronto trading as traders buy risk assets. Wall Street closed with the S&P 500 index just 1.0% below its record high. Overnight, S&P futures soared to a new all-time high, in anticipation that the U.S. government enacts a new coronavirus relief bill.
Global risk sentiment took a turn for the better as new U.S. coronavirus cases continue to decline. The number of new cases is below 50,000/day, which although high, far better than the 70,000 plus cases seen in the middle of July.
Sentiment also got a lift ahead of the US quarterly refunding auction which lifted 10-year Treasury yields from 0.545% to 0.602%.
Those gains helped underpin USD/JPY as well.
The rise in Treasury yields, improved risk tone sparked a profit-taking selloff in gold. XAU/USD dropped from $2,029.87/ounce to $1,974.57/ounce.
The Canadian dollar climbed along with its antipodean counterparts. AUD/USD gains outperformed those of NZD/USD, due to caution ahead of the Reserve Bank of New Zealand policy meeting Wednesday. The RBNZ is expected to leave interest rates on hold, and the currency pair is vulnerable to a rally if the statement is less dovish than expected.
USD/CAD cracked support at $1.3320 and is poised to revisit the $1.3200-40 support zone. Canada Housing starts are released today but will not be a factor. The Canadian dollar is riding the coat-tails of a broad U.S. dollar retreat, but the sustainability of the gains is questionable.
Canada’s budget deficit ballooned to over $343.0 billion from a mere $25 billion, and the government has not released its plans on how it will be managed. Finance Minister Bill Morneau may lose his position for his part in the WE Charity scandal. There are reports that he would be replaced with former Bank of Canada, and Bank of England Governor, Mark Carney. Carney would have to win a seat first. Even worse, Canada’s energy industry has not recovered from the oil price war nor has its distribution issues been resolved.
All the above suggest Canadian dollar gains will lag those of the G-10 currencies.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
