The Canadian dollar drifted higher steadily this week, but the rally seems to have stalled overnight.
USD/CAD was unable to extend losses below support in the $1.3240 area and inched higher overnight. Bank of Canada Governor Stephen Poloz was in Melbourne, Australia, attending a meeting of the Australia Canada Leadership forum. His remarks were not published on the BoC website, but he reportedly said that the Canadian economy “was in a good place.” He told the audience that the BoC must balance the risks of cutting interest rates in the event of a slowdown against increasing financial vulnerability risks. FX traders ignored the comments, preferring to focus on broad U.S. dollar sentiment.
Overnight, that sentiment was in risk-aversion mode. China announced a massive jump in the number of coronavirus cases and deaths, and traders got spooked. The bought the traditional safe-haven currencies, Swiss franc and Japanese yen, as well as gold while selling the commodity currency bloc. The increase in coronavirus (Covid-19) cases arose from a change in how the virus was diagnosed, giving doctors broader discretion. The earlier diagnosis is expected to reduce fatalities.
EUR/USD suffered the most from the coronavirus headlines. The news exacerbated concerns of a eurozone recession, especially after the European Commission said Covid-19 was a key downside risk. Eurozone industrial production data was weaker than expected yesterday. The results may worsen as China problems disrupt the supply of auto parts. EUR/USD is trading around its overnight low of $1.0862 in Toronto and has a negative outlook.
GBP/USD traders ignored Covid-19 fears and bought the currency pair after RICS Housing Price Balance Survey data exceeded expectations, rising 17%. (forecast 3.0%).
The rally squeezed short GBP/USD positions with the break above resistance at $1.2990, in part because the eurozone recession problems may improve the U.K. trade negotiation position.
Oil price movements were erratic. The China news knocked WTI from its overnight peak, but the decline was shallow. Oil traders are optimistic, and content to dismiss the Organization of the Petroleum Exporting Countries and International Energy Agency forecasts for a decline in crude oil demand in 20020. They believe Russia will come to terms with OPEC and agree to another round of oil production cuts, giving prices another boost. That news also underpinned the Canadian dollar.
USD/JPY dropped on the back of safe-haven demand for yen and a dip in US Treasury yields. AUD/USD and NZD/USD were weighed down by risk aversion sentiment, as well.
U.S. Consumer Price Index data and the weekly jobless claims report are on tap today. January CPI is expected to rise to 2.4% y/y from 2.3% in December.
