The Canadian dollar continues to drift within its well-defined USD/CAD trading band of $1.3240-$1.3340. The release of the September 18 U.S. Federal Open Market Committee (FOMC) meeting minutes is unlikely to offer any information or insight that would lead to a range breakout.
Canadian dollar traders are keeping a close watch on U.S./China trade developments. The U.S. Commerce Department added 28 Chinese companies and agencies to its list of firms banned from doing business in the U.S.. It also announced new visa restrictions on some Chinese officials that they claim are responsible for human rights violations. Chinese officials were a tad unhappy. A Chinese official said, "Xinjiang affairs are purely China’s internal affairs that allow no foreign interference. We urge the US to correct its mistakes at once and stop its interference in China’s internal affairs."
Nevertheless, the Chinese trade delegation did not cancel the trade talks that are scheduled on October 11, in Washington, which raised hopes for some progress on the trade war front. That news underpinned the antipodean currencies and the Canadian dollar.
The British pound traded erratically overnight because of numerous and conflicting Brexit rumours. GBP/USD traded rather quietly in Asia, drifting down to $1.2199 from $1.2220. Things got lively when the European session kicked off. GBP/USD soared to $1.2290 following rumours that the European Union (E.U.) would grant major concessions around the Irish border issue. Another rumour had the E.U. offering to extend the Brexit deadline. Both were denied, and GBP/USD dropped like a rock, hitting $1.2207. The GBP/USD fall sparked some CAD demand from GBP/CAD selling.
EURUSD managed to squeeze higher, rising from $1.0954 to $1.0989 on the back of broad U.S. dollar weakness following Fed Chair Jerome Powell’s speech, yesterday. Powell addressed the issue of extreme volatility in the overnight repo market that occurred in September. He said the spike in overnight interest rates from unexpected volatility made it clear the Fed needed a sufficient quantity of reserves in the banking system. To avoid a repeat of the overnight repo issues he said, "we will begin increasing our securities holdings to maintain an appropriate level of reserves."
If you think that means quantitative easing, you would be wrong, according to Powell. He said, "I want to emphasize that growth of our balance sheet for reserve management purposes should in no way be confused with the large-scale asset purchase programs that we deployed after the financial crisis. Neither the recent technical issues nor the purchases of Treasury bills we are contemplating to resolve them should materially affect the stance of monetary policy, to which I now turn."
The U.S. data calendar is light and the FOMC minutes are due this afternoon, which suggests a somewhat subdued morning trading session.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
