The Canadian dollar came under pressure alongside its antipodean cousins overnight. USD/CAD closed in Toronto on Monday at $1.3240 and opened today at $1.3273, after being caught up in AUD/USD moves.
The Reserve Bank of Australia (RBA) acted as expected and cut the Overnight Cash Rate (OCR) to 0.75%, which knocked the Australian dollar for a loop. AUD/USD plunged to $0.6696 from $0.6775, taking the New Zealand and Canadian dollars along for the ride. The rate cut was the central bank's third reduction since May and, according to the statement, necessitated because the risks to the global economy were "tilted to the downside." The statement also set the table for additional rate cuts in the future.
The World Trade Organization echoed the RBA's concerns about downside risks to the global economy. It issued a press release today that said: "Escalating trade tensions and a slowing global economy have led WTO economists to sharply downgrade their forecasts for trade growth in 2019 and 2020. World merchandise trade volumes are now expected to rise by only 1.2% in 2019, substantially slower than the 2.6% growth forecast in April."
The Bank of Canada may find it increasingly difficult to continue to ignore global interest rate developments and leave domestic interest rates unchanged. Traders will be looking closely at this mornings Canada July Gross Domestic Product data. Economists expect Canada July GDP to rise 0.1% compared with the 0.2% increase in June.
In Asia, weak Japanese Tankan data and concerns that the Bank of Japan would refrain from buying long term bonds boosted USD/JPY. The jump in U.S. 10-year Treasury yields helped lift USD/JPY from $108.05 to $108.46. However, the rally stalled in early Toronto trading and prices dipped to $108.27.
GBP/USD continues to ride the Brexit roller-coaster. GBP/USD dropped from $1.2305 to $1.2261, then rallied to $1.2312 before falling again and hitting $1.2285. Prices declined following a supposedly leaked report that the U.K. government planned a series of Irish custom checkpoints in a five- to 10-mile area near the Irish border. Irish officials rejected the idea, which raised the odds of a "no-deal" Brexit. Prime Minister Boris Johnson dismissed the rumour.
EUR/USD clawed back Asia losses in Europe. The single currency garnered a bit of support from slightly better than expected eurozone Manufacturing Purchasing Managers Index data and unchanged Core Consumer Price Index. EUR/USD bounced to $1.0907 from $1.0880.
Wall Street closed with gains yesterday, and U.S. equity futures point to a positive opening today, which should provide fresh support to the U.S. dollar. Today's U.S. data includes Institute for Supply Management manufacturing PMI and Construction spending.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
