The U.S. dollar rallied across the board overnight. A wave of risk-aversion sentiment washed over equity and FX markets fueling U.S. dollar demand. The Canadian dollar was collateral damage.
Asia equity markets came under pressure after Wall Street closed with losses. Poor earnings reports from Wells Fargo and Bank of America weighed on Asia stocks. Also, increased tensions between China and the U.S. had a lot of influence. The U.S. State Department warned that companies doing business with sanctioned Hong Kong officials could also face sanctions from the U.S. government. In addition, a U.S. Navy destroyer cruised the Taiwan Strait, antagonizing Beijing. Those issues drove HK’s Hang Seng Index down 2.1%.
Australia had its problems. Reserve Bank of Australia Governor Philip Lowe warned that interest rates could go higher, and bond purchases could increase if slow economic growth warranted another round of monetary stimulus measures. Traders interpreted his words to mean it was not a matter of "if" but "when."
AUD/USD dropped sharply, falling from $0.7167 to $0.7068. A weak employment report contributed to the losses, making AUD/USD the worst-performing major G-10 currency overnight. NZD/USD dropped due to widespread U.S. dollar demand.
USD/JPY traded sideways in a 105.00-105.50 range. Safe-haven demand for yen combined with softer U.S. Treasury yields undermined the currency pair, while U.S. dollar gains acted as a brake on losses.
EUR/USD dropped from $1.1757 to $1.1704. A wave of coronavirus outbreaks in many Eurozone regions is resulting in renewed restrictions. Paris is under a curfew, Spain has closed restaurants and bars in some areas, and Germany is calling the surge in COVID-19 cases a "broad second wave."
European Central Bank officials continue to stress the need for stimulative monetary policies. ECB official Francois Villeroy said that its accommodative monetary stance is appropriate. EUR/USD is also on the defensive as Brexit trade talks come down to the wire.
GBP/USD plunged from $1.3030 to $1.2910 on Brexit headlines and the increased risk that the talks end without a deal. The consensus belief is that the UK would suffer far more from a "no-deal" Brexit than the Eurozone, giving a $1.25 target for GBP/USD
The Canadian dollar is a bystander in the global drama. USD/CAD is tracking broad U.S. dollar moves, particularly those of EUR/USD. Domestic politics or economic data is not a factor for traders.
The weekly U.S. jobless claims data and the Philadelphia Fed Manufacturing Survey are on tap.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
