The Canadian dollar is in a holding pattern, alongside the rest of the G-10 major currencies. Traders are waiting for the U.S. Federal Open Market Committee (FOMC) monetary policy statement and Fed Chair Jerome Powell’s press conference this afternoon.
The U.S. dollar managed to squeeze out small gains compared to yesterday’s closing levels, after a somewhat subdued overnight FX session.
The Australian dollar inched higher in early trading after its domestic inflation report showed quarterly CPI rose 0.7% q/q, compared to the forecast for a 0.6% rise. The news suggested a lower risk for a rate cut by the Reserve Bank of Australia. The gains were not sustained, and AUD/USD slipped to its overnight low of 0.6745 in Toronto trading. The New Zealand dollar tracked AUD/USD moves in Asia and Europe but has outperformed in early Toronto trading.
FX traders are mildly risk-averse because of fears that the Wuhan coronavirus is spreading. Chinese health officials confirmed that as of January 28, there were 5,974 confirmed coronavirus cases and 132 deaths. Perhaps traders should be more alarmed. The U.S. and Japan are evacuating their citizens from quarantined cities. Major airlines, including British Airways, are cancelling flights to and from China. The virus is also impacting businesses in China. Starbucks said it would close 2,000 stores, and there are fears that a prolonged crisis will seriously erode China’s Gross Domestic Product growth.
Equity traders do not seem to care. Wall Street rallied yesterday and closed with significant gains. Apple’s report of record quarterly earnings boosted Asia equity markets gains, European bourses are in the green and US equity futures point to a higher open on Wall Street.
Equity prices are supported by expectations for an uneventful FOMC policy statement. The Fed is widely expected to leave interest rates unchanged and continue their "wait-and-see" approach. There is a risk, albeit a low one, of a more dovish than expected result, depending upon how Committee members react to the coronavirus.
GBPUSD traders appear to be ignoring the coronavirus and the Fed. They are focused on Thursday’s Bank of England policy meeting. In the past few weeks, BoE policymakers appeared to have adopted a very dovish outlook, in a series of speeches which raised the odds of a rate cut. However, many analysts believe those risks were reduced after a couple of better than expected economic reports. GBPUSD traded in a $1.3005-$1.3027 range overnight which is where it opened in Toronto.
EUR/USD prices are weighed down by bearish technicals and the dovish ECB outlook
The Canadian dollar is tracking broad U.S. dollar and oil price moves with traders looking ahead to Friday’s November GDP report. There aren’t any notable Canadian or US economic reports today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
