The Canadian dollar outperformed its antipodean cousins in overnight price action but ultimately opened in Toronto nearly unchanged from Tuesday’s closing level. Yesterday, U.S. Federal Reserve Chair Jerome Powell reiterated his warnings of downside risks to the U.S. economy in testimony to Congress, pointing to uncertainty around the pandemic.
The Canadian dollar ignored remarks by new Bank of Canada Governor Tiff Macklem yesterday. The governor was mildly positive about the prospects for the Canadian economy, saying the BoC expects a resumption of growth in Q3.
Overnight, news of new COVID-19 outbreaks in Beijing, and reports that six American states had record-high new cases, validated Powell’s concerns. There was an undercurrent of negative risk sentiment which fueled some demand for safe-haven currencies. Equity market gains curtailed the demand.
Equity traders appear to have dismissed fears of a new COVID-19 outbreak and ignored Powell’s testimony. Instead, they focused on recent U.S. economic data, and that data has been robust. Both last week’s U.S. employment report and yesterday’s Retail Sales data results were far better than expected, suggesting the US economy will rebound as fast as it had fallen.
The major Asia equity indexes closed flat to slightly higher, while European bourses rose, and S&P 500 futures point to a positive open on Wall Street.
Oil traders are taking their lead from the equity market, rather than from the Fed. West Texas Intermediate continued to consolidate recent gains and traded in a $37.21-$38.75 U.S./barrel range. Prices continue to be supported by the recent production cuts by the Organization of the Petroleum Exporting Countries, but gains were capped after the American Petroleum Institute said inventories rose 3.9 million barrels.
GBP/USD traders ignored a rash of economic data, leaving the currency pair to drift in a $1.2525-87 range overnight. U.K. Consumer Price Index and Producer Price Index data were close to forecasts while Retail Price Index data was a tad weaker. Traders appear to have gotten over their disappointment that EU//UK Brexit transition talks will be extended beyond December 2020.
EUR/USD traded quietly until mid-morning in Europe and then it bounced in a $1.1225-$1.1293 range. It is trading just above the overnight low in Toronto as weak Eurozone data, and bearish technicals weigh on the currency.
Canada May CPI was expected to jump to 0.7% from -0.7% in April. The increase is all due to a jump in gas prices and won’t be a factor for FX markets.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
