The Canadian dollar tested support yesterday and recouped some of Tuesday’s losses overnight. The loonie continues to be undermined by lingering negative risk sentiment and concerns the U.S. Federal Reserve will begin tapering ahead of plan. The slide in oil prices from $77.27/barrel at the beginning of July to $67.40/b in New York today exacerbated Canadian dollar selling pressure.
Canadian dollar direction is dictated by global risk sentiment and the outlook for the Fed. Seven Federal Open Market Committee members suggested that Quantitative Easing tapering should be started by year-end, which contradicts Fed Chair Powell’s outlook.
Yesterday, Powell said the effects of COVID-19 on the economy continue to be uncertain, and that millions of service sector workers are still unemployed.
Boston Fed President Eric Rosengren added his voice to the chorus suggesting another strong employment report would satisfy the Fed’s dual mandate.
The FOMC minutes from July 28 will be studied for additional insight into the Fed’s tapering plans. If they are thought to be hawkish, it may spark renewed U.S. dollar demand.
EUR/USD consolidated yesterday’s losses in a $1.1703-$1.1729 range, ahead of the FOMC minutes. Eurozone Consumer Price Index was confirmed at 2.2% for July, which was ignored. Germany sold 30-year bonds at negative rates (an average of -0.04%) for the first time ever. EUR/USD technicals are bearish below 1.1800.
GBP/USD climbed from $1.3733 to $1.3762. U.K. inflation dipped to a lower than expected 2.0% y/y in July, which was offset by higher-than-expected Producer Price Index data. ING economists suggest the drop in inflation is a temporary setback and are forecasting CPI to climb well above 3.0% later in 2021. GBP/USD needs to break above $1.3780 or risk further losses.
USD/JPY continues to recoup losses sustain since last Friday. USD/JPY climbed to 109.68 from yesterday’s low of 109.10. Prices were supported by steady U.S. Treasury yields and traders ignored mixed Japanese data.
NZD/USD had a wild night, dropping from $0.6940 to $0.6871, after the Reserve Bank of New Zealand decided against a 0.25% rate hike. The sharp spike in COVID-19 Delta-variant cases from 0 to 1, led to the government locking down the entire country, and forced the RBNZ to delay its planned rate increase. However, NZD/USD quickly recovered after the RBNZ statement suggested interest rate hikes are still on the agenda.
The rebound was short lived and NZD/USD is trading close to the overnight low in New York.
U.S. Housing Starts and Building Permits are due today, as well as the FOMC minutes from the July 28 meeting.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
