The Canadian dollar rallied overnight, alongside its antipodean currency cousins after the Caixin China Services Purchasing Managers Index report surged to 55 in May, compared to 44.4 in April. The Caixin result was its best level since 2010. AUD/USD soared on the news. Prices climbed to $0.6982 from $0.6880 before a bout of profit-taking occurred. Prices slid below the overnight low in early Toronto trading, coinciding with a rebound in the U.S. dollar against the G-10 majors. NZD/USD suffered a similar fate.
It was another "risk-on" Asia session. Wall Street closed with gains which led to a rise in the major Asia equity indexes in a moved fueled by hope for a robust, post-COVID-19 economic rebound. The Chinese Service PMI data added to the positive sentiment.
Rising oil prices provided another layer of support to those aboard the "global economic rebound" bandwagon.
West Texas Intermediate soared 22% since last Wednesday on the back of speculation that the Organization of the Petroleum Exporting Countries and Russia would agree to extend the 9.7-million-barrel-per-day production cuts beyond the end of June until September 1.
However, reports of wrangling between the two oil powers knocked WTI down from its overnight peak of $38.15/b to $35.91/b in early Toronto trading. That move hurt the Canadian dollar in the process.
USD/CAD tracked WTI price action and climbed to $1.3571 from $1.3482. Oil prices were not the only reason for the rally. A wave of profit-taking swept across FX markets, and the U.S. dollar clawed back most of its Asia and European losses in early New York trading.
EUR?USD dropped from $1.1227 to $1.1183 in Toronto before edging higher. Euro-zone employment data provided the single currency with support in Europe, when the unemployment rate rose 7.3%, beating the forecast for an 8.2% rise.
Nevertheless, EUR/USD remains underpinned by the EU COVID-19 Relief Fund proposal and by anticipation that the European Central Bank increases monetary stimulus at Thursday’s meeting.
GBP/USD climbed alongside the single currency despite concerns that the EU and U.K. trade talks have reached an impasse, which raises the risk of a no-deal Brexit. U.K. Services PMI at 29 was weak, but traders ignored the results.
The Canadian dollar is unlikely to get any direction from today’s Bank of Canada monetary policy meeting. The BoC will leave the overnight rate unchanged at 0.25% and be content to take a “wait-and-see” approach after the rash of stimulus measures announced recently.
Today’s U.S. data is second tier, and should not have an impact on FX markets.
