The Canadian dollar kicked it up a notch overnight, taking out resistance and accelerating higher. It wasn’t alone. All the G-10 major currencies rallied led by a 0.84% gain in the Japanese yen.
Bearish U.S. dollar sentiment was reinforced yesterday following Federal Reserve Chair Jerome Powell’s speech.
The Fed has struggled to come to terms with stubbornly low inflation for the past few years and felt that a 2.0% inflation goal would limit their ability to spur growth and create jobs. They decided to adopt an Average Inflation Target around 2.0%. He said, "following periods when inflation has been running below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time."
That decision won’t be based on a mathematical formula that defines average, which gives policymakers a lot of flexibility.
Also, the Fed tweaked the way they will react to changes in employment in making policy decisions. Powell said: In addition, "our policy decision will be informed by our "assessments of the shortfalls of employment from its maximum level” rather than by "deviations from its maximum level” as in our previous statement."
In Asia, USD/JPY sank after long-serving Japanese Prime Minister Shinzo Abe announced he was resigning for health reasons. However, it is not immediate. He will hang around until his replacement is named. USD/JPY is trading in Toronto at 105.28 after closing at 106.57.
EUR/USD rallied to $1.1919 in Europe then dropped on weaker than expected German Confidence data. The dip was short-lived, and prices are at the overnight peak in Toronto trading.
GBP/USD is a big beneficiary of month-end demand flows, which helped to exaggerate its rally from $1.3168 to $1.3314 in Toronto, today.
The Canadian dollar underperformed its antipodean peers. AUD/USD and NZD/USD surged on broad U.S. dollar sentiment following Powell’s speech. AUD/USD got an extra boost after reports the number of new coronavirus cases fell.
Canada Q2 Gross Domestic Product is forecast to have dropped 39.7% y/y. The data is stale and shouldn’t matter to FX traders, especially if June GDP data meets the forecast for a 5.6% gain.
There are plenty of U.S. economic reports today, but the results may not have much impact because of Powell’s speech. The data includes Michigan Consumer Confidence, Chicago Purchasing Managers Index, Wholesale Inventories, and Personal Consumption and Expenditures.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
