The Canadian dollar was in demand when Toronto FX traders started their day. It was not alone. As a rising tide lifts all boats, a sinking U.S. dollar lifts risk assets. Global risk sentiment good an added boost yesterday, thanks to the European Central Bank (ECB)
The ECB stepped up to the plate yesterday and delivered what the market expected - a healthy bump in the Pandemic Emergency Purchase Program (PEPP). The program was increased by €600 billion to $1.350 trillion. That news comes on the heels of Germany’s €130-billion stimulus program announced Thursday and the proposal for an EU €725-billion COVID-19 Relief Fund. The new money and the quickly disappearing lockdown restrictions raised positive risk sentiment in Europe and around the globe. The ECB meeting results overshadowed today’s weak German factory orders report.
EUR/USD climbed from yesterday’s $1.1195 low to $1.1383 overnight, leaving only downtrend line resistance at $1.1370, guarding a potential test of 1.2105. The EUR/USD rally sparked similar moves in the rest of the G-10 currencies do to the improved outlook for global growth. However, the magnitude and steepness of the recent rally, suggests a correction is overdue.
GBP/USD traders do not appear overly concerned that the latest round of EU/UK trade talks is poised to end without any agreement.
Negotiators have until June 30 to come up with a framework of a deal that would allow both governments to extend the hard-Brexit deadline beyond December 31, 2020.
The Canadian dollar has underperformed against the Antipodean currencies. AUD/USD has surpassed its pre-COVID-19 peak and is trading near December year-end levels. NZD/USD is less robust, but it has retraced all its COVID-19 losses. However, USD/CAD is still above the pre-pandemic lows. That underperformance has a lot to do with the decimation of Canada’s oil industry, and the government’s anti-oilsands policies which will hamper recovery.
The intraday USD/CAD technicals are bearish below $1.3520, looking for a break below $1.3430 to extend losses to the $1.3330-$1.3350, area which has plenty of support as it was previously, very strong resistance. A break above $1.3530 suggests a corrective rally to $1.3670.
The U.S. nonfarm payrolls (NFP) results will overshadow today’s Canadian employment report. NFP forecasts are all over the map. Weaker than expected NFP may spark a profit taking rebound in the U.S. dollar, which would boost USD/CAD in the process.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
