The Canadian dollar is the worst-performing currency since Friday’s New York open, having lost 1.41%.
The majority of the Canadian dollar losses are due to broad U.S. dollar demand from a sharp spike in negative risk sentiment due to developments in China.
China’s Evergrande Group is a massive property developer that has run into financial difficulties. The company has halted construction on properties with enough floor space to cover three-quarters of Manhattan. Other developers are being squeezed and the ripple effects could lead to panic selling by global investors who have bought over $500 billion of Chinese stocks and bonds since June 2020.
Those fears drove Hong Kong’s Hang Seng Index down 3.4%. Poor liquidity may have exacerbated the steep plunge due to holidays in China, Korea, and Japan.
Risk aversion is the theme in Europe with the major bourses deep in the red, led by a 2.3% drop in the German Dax. S&P 500 futures point to a negative open on Wall Street.
Weaker than expected domestic data may have exacerbated the Canadian dollar losses. The latest bout of coronavirus delta-variant cases, and supply chain disruptions may lead to lower than expected growth in Q3, delaying the recovery. However, they may be short-lived if the Bank of
Canada signals an early end to QE at next month's meeting.
Global risk sentiment is being adversely impacted by soaring natural gas prices which have doubled in the past six months. Higher gas prices will seriously impact consumers and businesses and threaten domestic and global growth.
EUR/USD dropped from $1.1731 to $1.1701 overnight and is sitting just above the low. A decisive break below support at $1.1700 and $1.1670 will extend losses to $1.1600. Overall U.S. dollar demand and fears of a hawkish outcome at Wednesday’s Federal Open Market Committee meeting is weighing on prices.
GBP/USD dropped to $1.3663 from $1.3749 due to elevated risk aversion and concern about higher natural gas prices on the U.K. economy. A drop in the FTSE 100 index to two month lows is another negative for the currency.
USD/JPY is trading at session lows after safe-haven demand for yen knocked prices from 110.03 to 109.50. However, steady to firm U.S. Treasury yields are acting as drag on losses.
AUD/USD suffered from risk aversion selling pressures in a move exacerbated by soft iron-ore prices.
There are no top-tier economic reports from Canada or the U.S. today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
