The Canadian dollar is trading at the best level that it has seen since yesterday’s Toronto close. Domestic developments did not have anything to do with the currency’s gain. That was due to a very modest flip in risk sentiment to risk seeking. The risk shift may help to explain overnight FX moves, but in the context of the last couple of weeks, the price action is just noise as the ranges for the G-10 major currencies are unchanged.
Asia FX traders had to contend with a Bank of Japan (BoJ) policy meeting and press conference and New Zealand inflation data. New Zealand was up first, posting a higher than expected 0.1% gain in Q4 inflation, q/q. NZD/USD soared to $0.6791 from its pre-data level of $0.671. The rally also bolstered demand for Australian and Canadian dollars, both of which inched higher in overnight trading.
The BoJ left policy rates unchanged, as expected. It created a bit of a stir when it trimmed inflation expectations in the accompanying Outlook Report. The 2019/2020 CPI forecast was cut to 0.9% from 1.4%. The reduction led to some speculation that the BoJ could cut interest rates at some future date which lifted USD/JPY from 109.33 to 109.78. The Canadian dollar saw a little support from CAD/JPY buying.
In Europe, EUR/USD price action has been contained to narrow ranges in a somewhat bearish environment. EUR/USD has been grinding lower for the past week, in part due to EUR/GBP selling because of U.K. Brexit developments. The single currency traded in a narrow $1.1354-71 range overnight with traders waiting for the results of Thursday’s European Central Bank (ECB) meeting. Last week, ECB President Mario Draghi told the E.U. Parliament that slowing euro-area growth underscored the need for continued stimulus. Those comments set the stage for another "dovish" ECB policy statement. The Canadian dollar was slightly supported by EUR/CAD selling.
GBP/USD has been the most active currency in the past few days, all due to Brexit and how the U.K. will move forward after Prime Minister Theresa May’s plan was soundly defeated. The U.K. press reports that there is a groundswell of support among parliamentarians for a Bill that makes it illegal for the U.K. to leave the E.U. without a deal. The Bill reportedly has the support of the opposition Labour Party, and the news has underpinned GBP/USD which has climbed from $1.2855 yesterday to $1.3040 today.
The FX market tone improved after White House Economic Advisor Larry Kudlow denied a Financial Times report that the upcoming China/U.S. trade talks were canceled.
Canadian dollar traders are awaiting this morning's November Retail Sales data. The data is expected to be weak due to lower gasoline prices. If so, the Canadian dollar will come under renewed selling pressure.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
