The Canadian dollar was smashed overnight but is attempting to pick up the pieces in early New York trading. USD/CAD closed at $1.2828 yesterday and then climbed steadily until finding resistance in the $1.2950 area. Prices inched lower and are trading at 1.2910 as of 7:30 am ET.
Oil prices fell over 15% in August due to rising production by the Organization of the Petroleum Exporting Countries and fears of lower demand from a slowing global economy. The oil price drop supported the risk-aversion fueled USD/CAD rally
Additional Canadian dollar pressure stems from a spike in negative risk sentiment that sparked a stampede into safe-haven U.S. dollars and Japanese yen. Rising numbers of COVID-19 delta-variant cases around the world which are occurring in people even with two vaccines unnerved traders. The virus spread risks another global economic slowdown as countries like Japan, Australia, and New Zealand reimpose strict lockdown measures.
Australia reported another 642 cases and extended the lockdown in Sydney until the end of September. New Zealand extended the nationwide lockdown until next Wednesday. The New Zealand lockdown forced the Reserve Bank of New Zealand to delay a planned 0.25% rate hike. Today, RBNZ Governor Orr said that COVID-19 along wouldn’t derail its rate hike agenda, but NZD/USD still remained defensive.
China’s regulatory clampdown and reports authorities plan to return the country to its communist roots exacerbated global slowdown fears, and supported risk aversion trades.
The Peoples Bank of China left interest rates unchanged at todays monetary policy meeting, which was expected.
The major Asia equity indexes closed deep in the red, and the major European bourses are underwater. Dow Jones Industrial Average and S&P 500 futures are down but off their worst levels. Gold prices are marginally higher and U.S. Treasury yields are steady.
Canada July Retail Sales are expected to rise 4.4% m/m, well above the 0.4% increase in June. The data is unlikely to be a factor for FX markets due to the focus on the Fed’s taper plans.
The Federal Open Market Committee minutes released Wednesday had a hawkish bias which appears to contradict Chair Jerome Powell’s statements insisting the Fed is a long way from achieving its dual mandate.
There are not any top-tier U.S. economic reports today leaving traders to shift their focus to Powell’s speech at the Jackson Hole symposium.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
