The Canadian dollar’s fortunes took a turn for the better yesterday. USD/CAD traded at $1.3617 in early Asia hours on Wednesday, coinciding with EUR/USD probing support in the 1.1330-40 area. The single currency rejected further weakness and bounced with a vengeance, rising to 1.1446, and knocking USDCAD down to 1.3502, in the process. Momentum waned and profit taking led to a US dollar bounce into the close.
The U.S. dollar rally continued in Asia, Ongoing tensions between the U.S. and China, alongside rising U.S. coronavirus concerns, led Chinese stock traders to take advantage of the nearly 11.0% rally in the Shanghai Shenzhen CSI 300 index, since July 1, to book profits. The index closed with a loss of 4.81%, helping to drive the other main Asia indexes lower, as well.
The equity market selloff contrasted with robust China Q2 GDP growth of 11.5% q/q. That news was soured by a 1.8% y/y drop in Retail Sales in June.
EUR/USD rallied to 1.1445 yesterday but reversed the move overnight. A break below support at $1.1370 would suggest a retest of $1.1260. The European Central Bank is expected to leave rates and policy unchanged today. The risk is in how they characterize the outlook for the recovery.
AUD/USD was unable to garner any support from better than expected employment data. AUD/USD peaked at $0.7032 yesterday, then retreated. The selloff continued overnight on the back of broad U.S. dollar demand. A decisive break below $0.6910 would spark additional losses to $0.6600.
Some pundits attributed yesterday’s Canadian dollar gains to the Bank of Canada’s monetary policy statement and Monetary Policy Report (MPR). Not so. The BoC left rates unchanged and the MPR outlook was "uncertain." The policy statement said it expects real Gross Domestic Product to decline by 7.8% in 2020.
It also appeared to put to rest any lingering fears about near-term rate hikes. The bank noted; "As the economy moves from reopening to recuperation, it will continue to require extraordinary monetary policy support. The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2% inflation target is sustainably achieved. In addition, to reinforce this commitment and keep interest rates low across the yield curve, the Bank is continuing its large-scale asset purchase program at a pace of at least $5 billion per week of Government of Canada bonds."
Today’s key U.S. data include jobless claims, June Retail Sales, and the Philadelphia Fed Manufacturing Index.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
