The Canadian dollar managed to hang on to yesterday’s gains in a quiet overnight session. A large swathe of the globe was closed for May 1 national holidays, and that sucked up a considerable amount of FX liquidity. Most of Europe was shuttered, but not Great Britain or Switzerland and they were the best-performing major G-10 currency pairs.
Japan was closed, but Australian and New Zealand were open. NZD/USD plunged from $0.6678 to $0.6631 after a weaker-than-expected employment report sparked speculation that the Reserve Bank of New Zealand would cut the OCR rate, next week. Prices recovered by the time Toronto opened. AUD/USD was supported by an increase in the AIG Performance of Manufacturing Index in April.
Traders ignored President Trump’s latest tweets calling for the U.S. Federal Reserve to cut interest rates He tweeted: "China is adding great stimulus to its economy while at the same time keeping interest rates low. Our Federal Reserve has incessantly lifted interest rates, even though inflation is very low, and instituted a very big dose of quantitative tightening. We have the potential to go... ....up like a rocket if we did some lowering of rates, like one point, and some quantitative easing. Yes, we are doing very well at 3.2% G(ross) D(omestic) P(roduct), but with our wonderfully low inflation, we could be setting major records &, at the same time, make our National Debt start to look small!”
The Federal Open Market Committee meeting policy statement will be released this afternoon at 2:00 p.m. (EDT). Despite what Trump wants, U.S. interest rates will stay put. There is a small risk that the statement could be considered "hawkish" if the Committee members acknowledge the better-than-expected economic data that has emerged recently.
The countdown to the FOMC meeting and the May Day holidays left the major G-10 currencies adrift in narrow ranges. EUR/USD inched higher, trading in a $1.1212-$1.1237 range, in part due to residual month-end portfolio re-balancing flows.
GBP/USD extended recent gains following better than expected Markit Manufacturing Purchasing Managers Index data for April. However, lingering concerns about Brexit continue to limit gains.
The Canadian dollar soared yesterday. Month-end Canadian dollar buyers lifted the currency pair through key resistance levels and triggered stop-loss buying. Yesterday’s rally was more impressive considering that February GDP results were disappointing. GDP shrank 0.1% with weak exports and mining activity largely to blame. At the same time, the data was for February, and brutal weather likely hurt the results.
Bank of Canada Governor Stephen Poloz stayed on script in his testimony to the Commons Finance Committee yesterday. He repeated that he expected the economy to recover in the second half of the year.
U.S. Institute for Supply Management Manufacturing PMI data is due today. Better than expected results should support the U.S. dollar and undermine the Canadian dollar at the same time.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
