The Canadian dollar broke out of its five-week trading range overnight, and the move was all due to external influences. USD/CAD price movements failed at the bottom and the top of its $1.3015-$1.3160 range since June 25. That changed overnight. The Canadian dollar plunged through support (USD/CAD resistance at 1.3160) due to widespread demand for U.S. dollars.
Yesterday’s European Central Bank (ECB) policy meeting was the catalyst for U.S. dollar buying. The ECB left interest rates unchanged while issuing a dovish policy statement. Furthermore, ECB President Mario Draghi didn’t say anything in his press conference to dissuade markets from expecting major policy action at the September meeting.
Draghi said "The Governing Council also underlined the need for a highly accommodative stance of monetary policy for a prolonged period of time, as inflation rates, both realised and projected, have been persistently below levels that are in line with its aim. Accordingly, if the medium-term inflation outlook continues to fall short of our aim, the Governing Council is determined to act, in line with its commitment to symmetry in the inflation aim."
Traders understood that statement to mean that interest rate cuts, tiered deposit rates, and even new quantitative easing may be announced in September. EUR/USD slipped on the news and continued to fall overnight.
Traders were also nervous about developments in the U.K.. Prime Minister Boris Johnson said he was fully prepared to leave the European Union on October 31 "with or without a deal." He also said he was confident he could renegotiate a better deal than what his predecessor Theresa May achieved. European Union (EU) officials didn’t agree. They said that the current deal was the best deal available. The rising risk of an "no-deal" Brexit undermined GBPUSD.
The Canadian dollar weakened alongside the Antipodean currencies in Asia. AUD/USD and NZD/USD were still feeling the pain from the outlook for lower domestic rates in both countries. Reserve Bank of Australia Governor Philip Lowe opined about the need for lower interest rates to bolster wage growth on Thursday. The Reserve Bank of New Zealand is on record for saying they need lower interest rates.
Interestingly, the Bank of Canada doesn’t need lower interest rates. At least for the time being, yet the Canadian dollar was lumped in with the rest of the dovish central bank currencies. Canadian dollar selling may be a knee-jerk reaction to broad U.S. dollar moves in the absence of actionable, tier-one Canadian economic data. That will continue to be the case until next Wednesday’s Canadian Gross Domestic Product report.
The only notable economic data on tap today is U.S. Q2 GDP, which is expected to rise 1.8%.
