The Canadian dollar traded sideways in a USD/CAD $1.3341-89 range overnight, as price action continues to be determined by ever-shifting U.S. dollar sentiment. The greenback has had a good week and is poised to close out the week with gains across the board.
FX action was steady during the Asia session. AUD/USD and NZD/USD inched higher following reports that the U.S. Congress was close to approving a new Coronavirus relief bill. USD/JPY inched higher on the back of AUD/JPY demand, and mildly improved risk sentiment. Those rallies came to a crashing halt . USD/JPY dropped to 105.42, and AUD/USD plunged to $0.7025 from $0.7085 on renewed U.S. dollar demand in Europe.
EUR/USD peaked at the European open then dropped from $1.1684 to $1.1629 in Toronto trading, just above its two-month $1.1626 low. There is broad U.S. dollar demand as portfolio managers rebalance their books for month-end. The 9.0% drop in the S&P 500 since September 1, suggests U.S. dollar buying. In addition, the resurgence of coronavirus cases in parts of Europe combined with bearish technicals following the break below $1.1680, are weighing on prices.
GBP/USD rallied from yesterday’s close of $1.2745 to $1.2804, then it collapsed, dropping to $1.2696 in early Toronto trading. Prices have recovered somewhat and are around $1.2735. U.S. dollar demand for month end is battling positive risk sentiment from yesterday’s new U.K. COVID-19 support package. However, the top side is capped as the deadline for a Brexit deal nears.
The Canadian dollar ignored the latest domestic political theater which came in the form of the Throne Speech at the close of business on Tuesday.
It outlined the government’s plans for the rest of the year. The plans are guided by the following: 1) Fighting the pandemic, 2) Supporting people and businesses, 3) Building a better Canada, 4) Standing up for who we are as Canadians.
Delivering on the promises is easy. All it takes is debt. The Throne Speech noted "with interest rates so low," governments can lock in "the low cost of borrowing for decades to come." Reclassifying 'Borrowing' as an 'Investment in the Future', certainly assists the optics.
U.S. Durable Goods Orders data are due today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
