Canadian dollar bulls slammed into a wall yesterday. USD/CAD dropped below the psychologically important $1.3000 level, but the dip was shallow and short-lived.
The move did not have anything to do with domestic influences, but it was because of a shift in U.S. dollar sentiment.
Tuesday, the U.S. Institute for Supply Management Manufacturing Index surged to 56 from 54.2 in July, forcing economists to re-assess their forecasts for U.S. growth. The prospect of a more-robust-than-expected U.S. economic rebound, combined with low Eurozone inflation data yesterday, and weak German Retail Sales data today, underpinned the greenback.
EUR/USD traders are speculating about a dovish policy statement from the European Central Bank (ECB) on September 10 with a risk of U.S.-style average inflation targeting stance. EUR/USD touched $1.2010 yesterday then dropped below minor support at $1.1970, which led to a further drop to $1.1912 at Tuesday’s close. Selling continued in Asia. Weak German Retail Sales data exacerbated the downside pressure in Europe. Prices continued to drop in New York and hit $1.1846 and targeting $1.1780 support.
GBP/USD dropped alongside the single currency after failing to touch 1.3500. GBP/USD fell from $1.3401 to $1.3327 overnight, and a break below $1.3320 would extend losses to $1.3215.
NZD/USD outperformed its AUD/USD counterpart, overnight. NZD/USD rallied after Reserve Bank of New Zealand Governor Adrian Orr suggested he was not concerned with the currency at current levels. Traders may have decided to buy Kiwi in hopes of finding the level which would get the governor’s concern. NZD/USD rallied to $0.6787 from $0.6749 but gave back those gains by the Toronto open.
AUD/USD suffered after Q2 Gross Domestic Product fell 0.7%, putting the country into a technical recession, the first in 20 years. No one should have been surprised by the GDP drop as it follows on the heels of similar performances around the world. Overall U.S. dollar strength weighed on the currency pair more than the data.
Today’s U.S. data calendar is light, but ADP employment often attracts attention. ADP is expected to show a gain of 950,000 jobs in August.
Higher-than-expected numbers will encourage speculation for a better than expected non-farm payrolls result on Friday.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
