The Canadian dollar is surfing the greenback selling wave and has ridden it to levels last seen in January.
If you think the Canadian dollar strength is due to the country’s post-pandemic recovery, the rebound in oil prices, or Bank of Canada monetary policy, you would be wrong.
Canadian dollar gains are solely due to negative U.S. dollar sentiment. The greenback has been sliding steadily since May, coinciding with a significant drop in U.S. Treasury yields. 10-year yields were 1.25% in March, and they hit 0.525% in August. Dovish Fed policies fueled the selling and were exacerbated last week.
U.S.Federal Reserve Chair Jerome Powell announced that the Fed would shift to Average Inflation Targeting from a mandated inflation goal of 2.0%. The Fed said the change was needed to manage employment growth better. Analysts concluded that it meant US rates would remain extremely low for an extended period.
U.S. dollar selling pressure seen last Thursday and Friday was due to many UK based portfolio manager re-balancing their books ahead of today’s 11:00 am fixing rate. Those flows were sizable due to the steep rise in the S&P 500 index in August. It has risen over 7.0% since the close on July 31.
Asia markets saw a lift in positive risk sentiment after China reported steady to higher Purchasing Manager Index data. Manufacturing Purchasing Managers Index was 51, beating the 48.7 forecasts while non-manufacturing PMI at 55.2 beats the consensus guess and the previous month’s results. Analysts noted that domestic demand rather than exports drove the gains.
NZD/USD rallied on the news climbing to $0.6750 from $0.6721, but lingering bearish sentiment due to ultra-dovish Reserve Bank of New Zealand monetary policy led to a reversal of the move.
AUD/USD lagged NZD gains ahead of Tuesday’s RBA monetary policy meeting.
EUR/USD is trading at the top of its $1.1885 to $1.1934 range, on the back of bearish US dollar sentiment, EUR/GBP demand, and a little month-end demand as well. However, prices are still inside the well-defined 1.1700-1.1970 range. Gains may be limited ahead of the imposition of new US tariffs that go into effect on Tuesday.
The economic data calendars in Canada and the U.S. are empty.
