The Canadian dollar inched higher overnight, on the back of a rally in the antipodean currencies. Global risk sentiment turned positive when China announced that Industrial Production and Retail Sales for September rose 6.9% y/y, and 3.3% y/y, respectively. The positive sentiment was tempered somewhat by Q3 Gross Domestic Product rising 4.9% y/y compared to forecasts for 5.2% y/y growth. Nevertheless, China is the first major economy to recover from the coronavirus pandemic.
Risk sentiment got an added boost on news U.S. House of Representative Leader Nancy Pelosi put a 48-hour deadline on COVID-19 Relief Bill talks. Traders are assuming that the deadline is an incentive for a deal. Arguably, buying risk-assets on this news is somewhat dubious.
GBP/USD was the best performing G-10 currency overnight, rising 0.75% after a report that the House of Lords may water down the Internal Markets Bill (IMB). The IMB was Prime Minister Boris Johnson’s bill that arbitrarily changed the terms of the EU/UK Brexit agreement. The House of Lords may water down the bill, or add extra guarantees, to make the terms more palatable to the European Union. Traders ignored news that Moody’s downgraded U.K. debt to Aa3 from Aa2. The downgrade was blamed on poor productivity growth which is exacerbated by the coronavirus.
EURUSD rallied to $1.1768 from $1.1704, powered by positive risk sentiment. The Pelosi stimulus comments helped, as did the robust Chinese data. The sentiment is also supported by expectations that the E.U. and U.K. will come to terms on Brexit. However, the latest surge in COVID-19 cases in Europe may limit the topside. The EUR/USD gains are acting as a drag on the Canadian dollar due to EURCAD demand.
USD/JPY ignored the G-10 currency price action and drifted in a narrow 105.32-105.49 range. Bank of Japan Governor Haruhiko Kuroda reiterated that the central bank would leave monetary policy guidance and inflation targets unchanged.
NZD/USD rallied to $0.6642 from $0.6605. The gains were due to the improved Chinese data, and U.S. stimulus bill talks. Prices were also supported by the Labour Party’s landslide election victory, which gave Prime Minister Jacinda Ardern a majority government.
AUD/USD climbed to $0.7113 from $0.7073 following China’s economic reports.
However, ongoing China/Australia political tensions and a dovish central bank outlook are limiting gains.
The minutes from the Reserve Bank of Australia October 1 monetary policy meeting are due tomorrow and are expected to reinvigorate the dovish outlook for the currency.
The Bank of Canada Business Outlook Survey (BOS) is released this morning. The Canadian dollar is likely to dismiss a positive outlook as it is offset by the latest COVID-19 restrictions in Ontario and Quebec.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
