USD/CAD - Canadian Dollar Looking Vulnerable

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The Canadian dollar is consolidating losses as the U.S. dollar opens in New York on a mixed note. USD/CAD broke above resistance at $1.3260 on Monday and has not looked back since.

Prices are in a rising $1.3300 - $1.3370 channel with traders looking for gains to $1.3550.

Canadian dollar direction is dictated by broad U.S. dollar moves, particularly EUR/USD price action. That relationship will be tested tonight and tomorrow when traders digest today’s Liberal government Throne Speech. The government prorogued parliament six weeks ago to avoid incessant scrutiny over WE charity issues, serious ethics violations and the resignation of Finance Minister Bill Morneau.

The Throne Speech will use the resurgence in COVID-19 cases to call for another surge in deficit spending, which will include a focus on climate-change initiatives while hammering more nails into the coffin of Alberta oilsands. The speech may even have announcements of a "guaranteed minimum income," an extension of wage subsidies.

If so, it would not be a stretch to suggest that global investors shun Canada and shift investments to, perhaps, Australia, which has a similar economy.

Global risk sentiment has improved. European stock markets are rallying strongly, and U.S. equity futures are pointing to a positive open on Wall Street. The U.S. House of Representatives passed a bi-partisan spending bill that avoids a government shutdown until December 11. Federal Reserve Chair Jerome Powell and Treasury Secretary Steven Mnuchin’s testimony to Congress yesterday did not offer any fresh insight into the Fed’s monetary policy outlook. The testimony continues today.

GBPUSD rebounded to $1.2747 after reaching $1.2677 overnight.

U.K. Manufacturing and Services Purchasing Managers' Index were at or close to forecasts, and the 2.2% rise in the FTSE 100 gain sparked profit-taking. Gains may be limited due to the resurgence of COVID-19 cases. European Union Chief Trade Negotiator Michel Barnier said that the E.U. was determined to get a trade deal although the evidence suggests that U.K. Prime Minister Boris Johnson and company do share his outlook.

The Reserve Bank of New Zealand did its part to crush NZD/USD. It left interest rates and policy unchanged and reiterated that the risks to its outlook were to the downside. The damage came from the RBNZ saying it was “on track to be operationally prepared for negative interest rates by year-end.” NZD/USD dropped to $0.6590 from $0.6646.

AUD/USD suffered following a prediction by Westpac Bank that the Reserve Bank of Australia would cut interest rates to 0.1% from 0.25% on October 6. AUDUSD dropped from $0.7176 to $0.7113.

There are not any Canadian data on tap today, and the U.S. data is second-tier.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates