The Canadian dollar is trading sideways, as U.S. dollar is lacking in direction.
The Canadian dollar shrugged off a worse-than-expected inflation report yesterday because weak economic reports are the norm for G-10 economies. For the record, Canada Consumer Price Index fell 0.4% y/y in May, well below the forecast for a flat result.
FX markets were directionless overnight, ahead of policy meetings from the Swiss National Bank (SNB) and the Bank of England (BoE). The SNB left rates and policy unchanged and reiterated that its ultra-easy monetary policy would remain in place for some time. The news was expected.
The Bank of England managed to muddy the waters while delivering upon expectations. It left its benchmark interest rate unchanged at 0.1% and increased the quantitative easing program by £100 million. The surprise was that the vote to increase QE was not unanimous. The vote was 8:1 with Chief Economist Andy Haldane voting against the action. The BoE justified its actions saying "There is a risk of higher and more persistent unemployment in the United Kingdom. Even with the relaxation of some COVID-related restrictions on economic activity, a degree of precautionary behaviour by households and businesses is likely to persist. The economy, and especially the labour market, will therefore take some time to recover towards its previous path."
EUR/USD traded with a modestly negative bias and opened in Toronto just above the bottom of its $1.1226-$1.1261 range. The currency pair is still suffering the adverse effects from yesterday’s weaker than expected Eurozone inflation report.
USD/JPY is trading with a negative bias due to safe-have demand for yen. News of the resurgence of COVID-19 in Beijing, and increases in cases requiring hospitalization in the U.S., unnerved traders. A retreat in U.S. Treasury yields and a drop in the Nikkei 225 did not help.
AUD/USD plunged to $0.6839 from $0.6884 on the back of a weaker than expected employment report, early in the Asia session. Australia announced a loss of 227,700 jobs in May and a rise in the unemployment rate to 7.1% from 7.0%. Earlier NZD/USD dipped after the government reported Q1 Gross Domestic Product shrank by 1.6%, compared to an increase of 0.5%. Both currency pairs fully recouped the losses in Europe.
The Canadian dollar closely tracked the antipodean currency price action. Rising oil prices limited losses while fears of another COVID-19 outbreak in the US limit gains.
FX traders will continue to follow Wall Street’s lead.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
