USD/CAD - Canadian Dollar Trades Sideways

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FX markets were directionless, and somewhat choppy while keeping existing ranges intact. Asia equity indexes were mixed to flat after Wall Street closed with losses. European bourses turned negative, alongside S&P 500 futures, in part due to disappointing earnings from Bank of America.

GBP/USD traders were busy. The currency closed at $1.2936 yesterday, after falling from $1.3068 on negative Brexit headlines. The downward spiral continued in Asia and in early European trading, with GBP/USD hitting $1.2865. The selling pressure was due to fears that the E.U. and U.K. would reach Prime Minister Boris Johnson’s deadline of October 15, without a trade agreement, leading to a "no-deal" Brexit.

Boris blinked. U.K. media reported that Johnson scrapped his deadline and would not walk away from talks. GBP/USD soared and touched $1.2988 in early Toronto trading.

EUR/USD has been left "outside looking in" during the GBP/USD drama. The single currency traded narrowly in a $1.1720-$1.1753 range. Prices are under pressure from renewed coronavirus outbreaks in various Eurozone regions. Also, dovish comments from European Central Bank officials and weak economic data are undermining prices. Eurozone Industrial Production rose 0.7% m/m in August.

In Asia, USD/JPY consolidated recent losses in a tight 105.32-105.50 range. Ongoing coronavirus concerns, uncertainty ahead of the U.S. election, and the lack of a new COVID-19 relief bill in America are keeping negative risk sentiment elevated.

AUD/USD and NZD/USD outperformed the Canadian dollar again, although all three currency pairs were confined to narrow trading bands.

The Canadian dollar is a puzzle. Weak domestic economic data, ballooning federal government deficits, higher taxes, soft oil prices, and a renewed coronavirus outbreak in Quebec and parts of Ontario suggest USD/CAD should be trading closer to $1.3400, rather than $1.3100. The Canadian dollar story is a U.S. dollar story. The loonie is trading inversely to U.S. dollar sentiment. When the greenback is in demand, the Canadian dollar sinks, and when the greenback is being sold, the Canadian dollar rises.

Oil prices have been relatively steady around $40.00 U.S./barrel. That level is too low to give the loonie much benefit.

There isn’t any top-tier U.S. data until Friday when retail sales are released. Until then, FX traders will take direction from Wall street price action, which may be choppy as quarterly earnings reports are released.

Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
Learn how KnightsbridgeFX can help you save up to 2% when buying or selling US dollars compared to your Canadian bank’s rates – click here to compare bank rates