The Canadian dollar came under selling pressure yesterday and never recovered. Prices closed at the session low, consolidated in Asia and European markets overnight and opened unchanged in Toronto, today.
Once again, the Canadian dollar was a victim of broad-based U.S. dollar demand. Reports that the Trump administration is considering some fiscal stimulus in the form of a payroll tax cut boosted the greenback. That led to U.S. dollar demand across the G-10 currency spectrum. The greenback held on to its gains despite White House officials denying that they were planning new stimulus action.
If Trump had his way, he would inject some stimulus into the U.S. market by cutting rates and weakening the U.S. dollar. Yesterday, he tweeted: "Our Economy is very strong, despite the horrendous lack of vision by Jay Powell and the Fed, but the Democrats are trying to 'will' the Economy to be bad for purposes of the 2020 Election. Very Selfish! Our dollar is so strong that it is sadly hurting other parts of the world... The Fed Rate, over a relatively short period, should be reduced by at least 100 basis points, with perhaps some quantitative easing as well. If that happened, our Economy would be even better, and the World Economy would be greatly and quickly enhanced-good for everyone!"
The tweet wasn’t anything he hadn’t said before, but it still provided the greenback with a modicum of support.
GBP/USD was centre stage in Europe. British Prime Minister Boris Johnson released a letter outlining his reasons why the Irish border backstop agreement should be ripped up and renegotiated. The European Union is on record for not being interested in reopening that part of the agreement. Johnson’s action brought "no-deal" Brexit to the forefront and GBP/USD from $1.2135 to $1.2070.
EUR/USD traded with a negative bias in a narrow $1.1072-$1.1087 range. The single currency is under pressure because of Italian political risk and the talk of U.S. fiscal stimulus. The short-term technicals are bearish with a decisive break of $1.1060, suggesting further losses to $1.0850.
USD/JPY retreated from yesterday’s peak of 106.66 and dropped to 106.32 in early Toronto trading. Sellers emerged when U.S. Treasury yields dropped from their overnight peak.
AUD/USD managed to grind higher after the Reserve Bank of Australia minutes from the August 6 meeting suggested domestic interest rates would remain unchanged for the next few months. The RBA wants more time to assess the impact of its two previous rate cuts.
Canadian dollar traders are awaiting today’s Manufacturing shipments data for June. They are forecast to fall 1.7% due to weaker auto shipments. A worse-than-expected result would drive the Canadian dollar lower. There isn’t any U.S. data of note.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
