The Canadian dollar rally came to a halt yesterday as risk sentiment turned negative. Concerns about rising U.S. interest rates, high valuations, and rising regulatory risks knocked the NASDAQ 2.55% lower, and that move roiled Asian and European equity markets overnight.
The Nikkei led Asia (except Chinese) indexes lower, as it closed down 3.06%. European equity markets are suffering a similar fate. The U.K. FTSE 100 is 2.3% lower while the German DAX is down 2.4%. U.S. equity futures suggest a negative open on Wall Street.
FX traders do not appear overly concerned about the stock market weakness. The USD dollar remains on the defensive, compared to yesterday’s opening levels. AUD, JPY, and NZD are lower, CAD, and GBP are modestly higher, and EUR is unchanged.
West Texas Intermediate oil prices inched lower, falling from $65.71/barrel to $64.12 in NY trading today. Profit-taking and mild risk aversion sentiment drove prices lower.
EUR/USD rallied from $1.2124 to $1.2168 into the New York open. German and Eurozone ZEW Confidence data was better than expected, which supported the single currency. However, EUR/USD needs to break above $1.2180 or risk retracing to above $1.2040.
GBP/USD is consolidating gains in a $1.4105-$1.4147 range, with prices supported by U.K. election results. U.K. BRC Retail Sales rose 39.6% y/y in April compared to 20.3% y/y in March. GBP/USD is expected to range in a $1.4010-$1.4240 band.
USD/JPY drifted in a 108.67-108.97 range. Gains from an increase in 10-year Treasury yields were offset by JPY demand due to mild risk aversion sentiment. The Bank of Japan summary of opinions did not provide any fresh insight into the economic outlook.
AUDUSD ignored the latest China trade hassle and climbed from $0.7823 to $0.7852. China reportedly told two smaller LNG importers not to buy from Australia. The Australian budget is due tomorrow.
The Canadian dollar is being undermined by softer commodity prices and modestly bearish risk sentiment. Some analysts believe that the 4.5% Canadian dollar rally since April 21, means a corrective selloff is overdue.
The U.S. and Canadian economic calendars do not have any actionable economic data.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
