The Canadian dollar made another attempt to break USD/CAD support in the $1.3190 area, which failed. However, the subsequent bounce stalled at $1.3250, which suggests USD/CAD bears are merely regrouping before trying again.
August is known for having poor liquidity and exaggerated, but unstained moves in some currency pairs.
That’s because many senior traders in Europe, the U.K. and New York, choose to take vacations in August. This year isn’t any different.
Equity market moves are driving US dollar direction. The NASDAQ is at record highs, leading to positive risk sentiment.
Traders may be getting complacent as there are a lot of significant risks lurking in the weeds. Some of those risks include a second wave of the COVID-19 pandemic, the U.S. election, and the prospect of negative interest rates in some regions including Canada, New Zealand, and the U.S.
China is at the heart of many of the risks. Beijing is feuding with the U.S, Canada, Australia, New Zealand, Great Britain, and the European Union. They are not afraid to use their trade muscle to make a point, with all the countries except for the US.
China is annoyed at Australia for demanding an independent inquiry into the COVID-19 pandemic. They are also peeved because Australia openly criticized China’s handling of protests in Hong Kong.
China and New Zealand’s dispute is because of the Kiwi’s have suspended its extradition treaty as well as technology exports to China.
The U.K. and the European Union face China’s wrath because those two nations expressed dissatisfaction with China’s detention of Uighurs.
China is America’s favourite "whipping boy." President Trump is attacking Beijing on all fronts in what many believe is a calculated attempt to distract voters from his bungling of the pandemic response, and a desperate attempt to regain the election lead. The U.S. opposes China’s South China Sea aspirations and is now aiming at Chinese technology companies by banning or forcing a sale of WeChat and Tik Tok.
China is a major source of risk for complacent FX traders.
There is plenty of U.S. data on tap today. Better than expected Michigan Consumer Confidence, Retail Sales, Business Inventories, Capacity Utilization, and Industrial Production, could spark fresh demand for equities, which would support the positive risk environment.
Canadian dollar direction continues to be dictated by U.S. dollar moves while domestic data is ignored.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
