The Canadian dollar stands in contrast to turbulent FX markets, especially when measured against GBP/USD. Yesterday, the loonie tested resistance and support boundaries and rejected them both. USD/CAD continues to bounce inside its two-week range of $1.3200-$1.3305. The Canadian dollar continues to derive support from narrowing USD/CAD short term interest rates, relatively firm oil prices, and decent domestic economic data. At the same time, deteriorating global growth, geopolitical tensions, particularly in the Middle East, and broad U.S. dollar demand limit Canadian dollar gains.
The U.S. dollar recouped some of yesterday’s losses in a busy overnight session. Asia opened with AUD/USD and NZD/USD rising, continuing the flow from North America. The rally ran into headwinds. Goldman Sachs analysts triggered AUD/USD selling after issuing a report warning of quantitative easing. They said the Reserve Bank of Australia’s intermodal projects the need to buy $200 billion of bonds to meet its inflation and employment targets. AUD/USD dropped to $0.6772 from $0.6717 and is trading in Toronto close to the low. NZD/USD price action mirrored AUD/USD moves.
USD/JPY traded with a negative bias alongside falling U.S. Treasury yields. 10-year U.S. Treasury yields plummeted from 1.75% to 1.682% yesterday and then consolidated those losses overnight. Tuesday’s, weaker than expected U.S. Institute for Supply Management Manufacturing Purchasing Managers' Index data sparked recession concerns. That led to safe-haven demand for yen, broad U.S. dollar weakness, and a losing day on Wall Street.
The British pound has been extremely volatile in the past 24 hours. The U.K. needs to present an acceptable plan to the European Union by October 17 or ask for an extension by October 19. Prime Minister Boris Johnson said the U.K. was ready for a "no-deal" Brexit and addressed the Tory conference today. GBP/USD has traded erratically in a $1.2208-$1.2334 range over the past 24 hours.
EUR/USD bounced in a $1.0904-$1.0940 range overnight after rallying from $108.88 yesterday when the U.S. ISM Manufacturing data missed forecasts. Traders are torn between buying EUR/USD on rising U.S. recessions concerns or selling EUR/USD because of the dovish European Central Bank outlook.
Yesterday, President Trump tweeted: "As I predicted, Jay Powell and the Federal Reserve have allowed the Dollar to get so strong, especially relative to ALL other currencies, that our manufacturers are being negatively affected. Fed Rate too high. They are their own worst enemies, they don’t have a clue. Pathetic!" It didn’t help U.S. dollar sentiment.
Broad U.S. dollar moves will guide Canadian dollar direction, as will Wall Street price action. Today’s U.S. data includes ADP employment. The Canadian calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
