The Canadian dollar exploded yesterday. A wave of safe-haven U.S. dollar demand washed over FX markets, as Wall Street stock prices plummeted. USD/CAD ripped through resistance at $1.3260, touched $1.3317, before closing at $1.3305.
That price action occurred in the context of EUR/USD plunging to $1.1731 from $1.1866.
Yesterday’s rout on Wall Street was sparked by concerns about a "second-wave" coronavirus outbreak, disappointment about the pace of vaccine trials, and concerns about the U.S. government being forced to close due to budget issues. The Dow Jones Industrial Average was down nearly 1,000 points at its worst, but prices inched higher into the close.
Asian equity indexes followed Wall Street lower, but not to the same degree, in part because Japan’s Nikkei 225 eked out a small gain.
European bourses went one better. They are all higher.
GBP/USD traded erratically. Prices plunged from $1.2965 yesterday to an overnight low of $1.2714.
Broad U.S. dollar demand and Bank of England Governor Andrew Bailey get the credit for the losses. The governor spooked traders when he said that policymakers discussed negative interest rates. Prices rebounded sharply, rising from the low to $1.2866 when the governor said he said he wasn’t implying that the BoE would adopt negative rates. The rally got an added boost on a report that European Central Bank Chief Trade Negotiator Michel Barnier was in London for a meeting.
EUR/USD rebounded from its low to trade at $1.1758 in Toronto.
Prices are underpinned by the rally in Euro area equity markets, and higher U.S. equity futures. However, recent comments by ECB policymakers about the exchange rate may limit gains. President Christine Lagarde spoke about the impact of the exchange rate on other economic metrics.
Other officials echoed her remarks,
The Reserve Bank of Australia apparently heard the ECB message on exchange rates. Deputy Governor Guy Debelle said that a lower exchange rate would be beneficial for the Australian economy. He reinforced that message by adding FX intervention was an option. AUD/USD bounced from $0.7180 to $0.7234.
Fed Chair Jerome Powell testifies before the Finance Committee of the House of Representative. The text of his speech was released yesterday. It doesn’t give any additional insight than what was available at the FOMC meeting. However, the Q&A session could trigger some FX volatility.
There are not any U.S. or Canadian economic reports of note today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
