The Canadian dollar was swamped by a wave of negative risk sentiment washing over markets. A slew of bad-news headlines led traders to buy U.S. dollars and Japanese yen as safe-havens. Global equity indexes slumped, and Wall Street is poised to open in negative territory.
Traders were spooked after news the Taliban regained control of Afghanistan, despite the efforts of U.S., U.K., Canadian, and other allied troops to turn the country into a western-style democracy.
Recurring coronavirus Delta-variant outbreaks in many regions have caused new restrictions to be implemented, which suggests global growth may slow. Australia and Japan have extended lockdowns, while US officials discuss the need for a third COVID-19 shot.
Markets were also unnerved when Chines Retail Sales and Industrial Production reports were sharply weaker than forecast. China Retail sales rose 8.5% y/y, a solid result, but a lot slower than the 12.1% seen in June. Industrial Production rose 6.4% y/y compared to 8.3% in June.
Analysts suggest the weaker performance was due to renewed coronavirus outbreaks.
EUR/USD rallied Friday after the US Michigan Consumer Sentiment Index was weaker than expected. The result implied the Federal Reserve would be in no hurry to tighten rates. EUR/USD broke above resistance at $1.1770 but the rally stalled at $1.1800 and prices retreated to $1.1768 in New York.
GBP/USD traded in a $1.3840-$1.3877 range, with prices weighed down by EUR/GBP demand. Prices continue to be supported by the belief the Bank of England will hike rates while the European Central Bank will maintain its accommodative monetary policy stance.
USD/JPY dropped to 109.27 from 110.40 Friday, coinciding with a steep slide in U.S. 10-year Treasury yields which fell to 1.277% from 1.367% Friday. Japan is also suffering from restrictive measures being imposed due to spreading delta-variant COVID 19.
AUD/USD erased all of Friday’s gains, falling from $0.7380 to $0.7327 in NY due to fears of a domestic economic slowdown due to COVID-19, weak Chinese data, and NZD/AUD demand ahead of the Reserve Bank of New Zealand monetary policy meeting Wednesday.
The U.S. and Canadian economic calendars are light. Canadian dollar traders are looking ahead to Wednesday’s inflation report. Canada Consumer Price Index is expected to have risen 3.4% y/y in July.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
