The Canadian dollar extended yesterday’s gains in an active overnight session. Traders were scrambling to unwind safe-haven trades after positive developments on the U.S./China trade front and Brexit news.
The British pound recorded the largest gain against the U.S. dollar this week and it is also the best performing currency overnight. GBP/USD soared to $1.2684 from $1.2205 yesterday following meetings between U.K. Prime Minister Boris Johnson and Irish Prime Minister Leo Varadkar.
The two leaders announced they "could see a pathway to a possible deal." That suggests they found a workable solution to the Irish border issue, which was a major stumbling block towards a Brexit deal. The news kicked off the GBP/USD rally. European Union Council President Donald Tusk said "I have received promising signals from the Taoiseach (Irish Prime Minister Leo Varadkar) that a deal is still possible. Technical talks are taking place in Brussels as we speak."
Prices accelerated in early trading when the EU27 agreed to intensify talks.
Elsewhere, traders focused on promising developments around the U.S./China trade negotiations. President Trump said he planned to meet with Chinese Vice Premier Liu He today which some analysts saw as a sign that a deal could be announced. There have been reports that China would agree to a less comprehensive agreement. That news sparked a "relief rally" and sparked the unwinding of safe-haven trades.
USD/JPY rose from 107.02 on Wednesday to 108.35 in early Toronto trading while USD/CHF climbed from 0.9915 to 0.9987, providing clear evidence of the shift out of risk-averse currencies. USD/JPY got an added lift from a steep rise in U.S. Treasury yields which jumped to 1.717% from 1.579% yesterday.
EUR/USD is probing resistance in the $1.1050 area thanks to the rebound in risk sentiment and the better tone to the Brexit negotiations, but it is clearly taking a back seat to GBP/USD. The single currency is not out of the woods either as slowing euro-zone growth, and the dovish European Central Bank outlook weighs on prices.
The Antipodean currencies were big winners on the shift in U.S./China trade sentiment. AUD/USD outperformed NZD/USD in part because New Zealand Business NZ Purchasing Managers Index and Electronic Card Retail Sales reports were weaker than forecast.
Oil prices surged after Iran claimed two missiles struck an oil tanker in the Red Sea off the coast of Saudi Arabia. West Texas Intermediate jumped to $54.84/b from $53.70 but has retreated from the high.
The Canadian dollar rallied on the back of the broad U.S. dollar weakness. However, gains were hindered by fears of a week employment report today. Canada is expected to add 10,000 jobs in September, compared to the outsized 81,100 gain in August. The risk is that it will be well below the forecast.
Today’s US Michigan Consumer Sentiment data will be overshadowed by Brexit, Trade and Wall Street developments.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
