The Canadian dollar story is that there isn’t one. The domestic currency direction is dictated by broad U.S. dollar sentiment. That sentiment was bullish overnight due to Eurozone data, Brexit talks, and position adjusting ahead of the weekend.
Canada Retail Sales data is expected to rise 24.5% m/m in June. FX traders should not care as the gain is all because of pent-up demand from coronavirus lockdown measures. It is not because the Canadian economy is on fire.
The Canadian dollar is under modest pressure in early Toronto trading due to a mild bout of "risk-off" sentiment wafting through markets.
European equity indexes are in negative territory. U.S. equity futures gave up earlier gains and are pointing a lower open for Wall Street. The U.S. dollar gains are hurting gold prices. XAU/USD continued to slide from Tuesday’s peak level of $2014.75 and is testing support in the $1920.00 region. Oil prices couldn’t hang on to gains after data showed US crude inventories declined last week. WTI dropped from $42.95/barrel to $42.19/b in Toronto.
Eurozone data sparked the wave of U.S. dollar demand. Euro area Purchasing Managers Index reports were weaker than expected raising concerns that the economic rebound was stalling. EUR/USD dropped from $1.1882 to $1.1769 in Toronto trading. The fall may have been exaggerated by thin August markets.
GBP/USD plunged from $1.3254 to $1.3103 and could fall further. News that Brexit talks stalled spooked traders. EU Chief Negotiator Michel Barnier said that a deal seems unlikely. He said, "Too often this week it felt as if we were going backwards more than forwards. Given the short time left, what I said in London in July remains true, today at this stage, an agreement between the UK and EU seems unlikely."
U.K. negotiators blamed the E.U. for the impasse. U.K. Chief Negotiator David Frost complained that the EU was making it "unnecessarily difficult" because they insisted fisheries issues must be resolved before other areas can be discussed.
AUD/USD and NZD/USD traded quietly in narrow ranges. NZD/USD traders ignored comments by Reserve Bank of New Zealand Deputy Governor Young Ha who warned that economic downside risks exceeded upside risks, and made a case about the effectiveness of negative interest rates.
Today’s U.S. data includes Markit PMI data and existing home sales, neither of which will be a factor for FX.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians