The Canadian dollar is a tad higher. The local currency shrugged off broad U.S. dollar strength yesterday and inched higher during a somewhat lively European session. The gains did not have anything to do with domestic influences but were all because of month-end selling of U.S. dollars as global portfolio managers re-balanced their positions.
The Asia session traded with a small negative risk bias thanks to weaker than expected Chinese data. China reported April Manufacturing Purchasing Managers Index dropped to 50.1 from 50.5 in March. Traders were expecting an unchanged report. The decline was confirmed by the Caixin Manufacturing PMI release which showed PMI falling to 50.2 rather than rising to 51.0 as was forecast. AUD/USD dropped on the news, falling from 0.7068 to 0.7035. However, the losses were recovered before Toronto started trading.
The New Zealand dollar fared a little better thanks to ANZ Business Activity, and Business Confidence reports for April, which was better than forecast. FX liquidity was worse than usual due to the Japan Golden Week holidays.
FX traders were busy in Europe. There were numerous economic reports released including those from Germany, France, Italy, Spain and the euro-zone. German inflation and euro-zone Gross Domestic Product data were the most critical data, and they were better than expected. German inflation rose 1.7% in April, year over year while euro-zone GDP grew at 1.2%, above the 1.1% predicted. EUR/USD rose on the news, and the rally got an added lift because portfolio managers were buying EUR/USD as well.
Sterling had a good day with GBP/USD climbing from $1.2929 to $1.3011 with the move driven by month-end demand. There wasn’t any U.K. data of note.
There is a better tone to risk sentiment in Toronto this morning than what was in Asia overnight. The S&P 500 closed with a new record peak. Prices are supported by the U.S. Federal Reserve's shift to a dovish policy outlook and the prospects for continued U.S. economic growth. A strong U.S. economy tends to be good for the Canadian economy.
The health of the Canadian economy will be on full display this morning when February GDP data is released. Analysts are expecting a flat report (0.0%) compared to January’s surprise gain of 0.3%. The Canadian dollar would rally on the back of another upside surprise.
Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins testify before the House Finance Committee this morning. The duo is unlikely to digress from their remarks during their Monetary Policy Report press conference last week.
The U.S. dollar could see renewed buying interest if today’s economic reports surprise to the upside. The data includes Consumer Confidence and the Chicago Purchasing Managers Index.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
