The Canadian dollar tanked along with the rest of the major G-10 currencies overnight. The British pound was the biggest loser, giving up 2.5% on a combination of Brexit and coronavirus woes.
The weekend Brexit deadline is just a memory. Nothing changed. The sides are at an impasse over European Union access to U.K. waters for fishing. It is almost laughable when you consider that fishing is less than one half of 1% of Gross Domestic Product in the U.K. and not even a rounding error for E.U. GDP. Brexit deadlines are like election promises-they are meaningless. The next deadline is Christmas Day.
Traders were also spooked by news of a mutant strain of the coronavirus in the U.K., resulting in the government implementing new draconian restrictions. The E.U. responded by closing borders and airports to UK travelers and freight. GBP/USD plunged, falling to $1.3190 from $1.3530.
They have since recovered to $1.3290 in Toronto trading.
EUR/USD suffered from the failure to achieve a Brexit agreement and on risk-aversion demand for U.S. dollars. U.S. politicians agreed to a new COVID-19 Relief bill on the weekend. Most of the details were known, and the news was expected, leading to a text-book example of "buy-the rumour-sell-the-fact. The greenback had been widely sold on anticipation that the Republicans and Democrats would reach an agreement. When they did, it resulted in a wave of profit-taking.
Bear in mind that holiday-thinned and year-end markets exacerbated the magnitude of the FX moves.
USD/JPY traded firmer in a 103.26-103.88 range. Risk-off demand for yen and choppy prices swings in U.S. Treasury yields drove price action.
AUDUSD and NZDUSD lost 1.78% and 1.76% respectively. They suffered from a wave US dollar demand which drove prices lower and triggered some stop-loss selling.
The Canadian dollar dropped 1.10% against the U.S. dollar, tracking the commodity currency bloc lower. USD/CAD rallied from a low of $1.2788 in Asia to 1.2956 in Europe, just before Toronto opened. Prices have subsequently dropped to $1.2880. USD/CAD gains were underpinned by a drop in West Texas Intermediate (WTI) oil prices, which fell from $49.08/barrel to $46.11/b, a drop of 6.0%. Also, the second-wave coronavirus pandemic is resulting in new stricter lockdown measures being imposed across the country.
FX markets will remain choppy, and headline-driven.
