USD/CAD - Canadian Dollar Ignores Benign BoC

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The Canadian dollar rallied after hitting a three-week low yesterday. USD/CAD peaked at $1.3255 on Wednesday, then dropped to $1.3133 in Asia overnight. The price action was all due to the fortunes of EUR/USD. The single currency rejected losses below support in the $1.1760 area and rebounded to $1.1840.

The European Central Bank did not surprise anyone (so far). It left interest rates and policy unchanged. Traders are patiently awaiting the ECB press conference for more insight. There were concerns in some quarters that the statement might refer to the exchange rate, which would have been "verbal intervention."

GBP/USD is in the crosshairs again. The E.U./U.K. Joint Commission is meeting, and tensions are high. E.U. Chief Trade Negotiator Michel Barnier reportedly threatened to disrupt exports of food between Great Britain and Northern Ireland if there wasn’t a trade deal. That is what sparked the U.K.’s decision to make changes to the withdrawal agreement. Those proposed changes have angered the E.U. which is threatening to take the U.K. to court and levy a lump-sum fine. Trade war worries and the rising risk of a second wave COVID-19 outbreak across the U.K. are weighing on the currency.

The Bank of Canada monetary policy statement did not give Canadian dollar traders any ammunition. The BoC managed to tread a fine line between optimism and pessimism. It noted, "the bounce-back in activity in the third quarter looks to be faster than anticipated in July." That good news was offset when it said "The Bank continues to expect this strong reopening phase to be followed by a protracted and uneven recuperation phase, which will be heavily reliant on policy support. The pace of the recovery remains highly dependent on the path of the COVID-19 pandemic and the evolution of social distancing measures required to contain its spread."

Canadian dollar price action continues to track EUR/USD moves, but additional gains may lag. That’s because crude oil prices are slumping. West Texas Intermediate, the North American benchmark price has dropped 13% in the past 10 days, due to concerns about dwindling demand, especially from China.

FX markets will track equity moves, and equity traders will take their cue from today’s U.S. Weekly Jobless Claims report. Claims are expected to decline again, which suggests an ongoing U.S. economic recovery.

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