Summer doldrums: In FX markets the term describes quiet August markets that are vulnerable to bouts of high volatility. Overnight FX markets got the summer doldrums part correct, but not the volatility. It was a snoozefest, and early signs in Toronto suggests today’s activity will be similar.
Even a potential supply disruption did not get oil traders overly excited. Hurricane Laura is expected to make landfall in Texas as a Category 4 storm, and that has shuttered oil refineries. West Texas Intermediate, the North American benchmark price, climbed from $42.30/barrel on Monday to $43.54/b yesterday, in a move best described as a stroll, not a sprint. Prices inched off from the peak overnight.
Steady to firm WTI prices may not be creating Canadian dollar demand, but they are helping to limit losses.
USD/CAD has trended lower since the middle of July, and the downtrend line has thwarted many attempts for the currency pair to break to the top. That trendline comes into play at $1.3220 today. USD/CAD selling pressure stems from broad U.S. dollar weakness. The greenback is suffering because of the Trump administration’s failure to enact a replacement to the CARES Act, and the threat that the Fed adopts an even more dovish monetary policy stance, which may be announced on Thursday.
Fed Presidents have a history of announcing major policy news at the annual Jackson Hole Symposium, sponsored by the Federal Reserve of Kansas City. This year, Fed Chair Jerome Powell is expected to unveil a complex set of measures aimed at lifting inflation. The Fed is concerned that the persistently low levels of inflation will limit its ability to use monetary policy to combat another financial crisis.
Overnight, geopolitics took center stage in Europe, although FX traders ignored the events.
France stepped up pressure against Turkey’s incursion into Greece territorial waters which are rich in energy resources. France joined Greece, Cyprus, and Italy in military manoeuvres in the region, clearly taking sides against fellow NATO member Turkey.
EURUSD traded lower in a narrow range, while GBPUSD posted small gains. The rest of the major G-10 currency pairs were directionless inside well-defined bands.
U.S. Durable Goods orders are due today and expected to rise 4.3% in July, down from June’s 7.6% increase.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
