The Canadian dollar is in demand; month-end demand. On the last day of each month, many foreign investors need to rebalance their portfolios to account for monthly equity gains or losses to adhere to their benchmarks. The moves are more significant depending upon the equity gains.
In August, the S&P 500 500 index rose over 2.9%, suggesting USD/CAD selling until the 11:00 am fix.
The monthly selling pressures are largely responsible for the USD/CAD drop from an overnight peak of $1.2624 to $1.2572 in New York.
Canada Q2 Gross Domestic Product is forecast at 2.5%, q/q, while June GDP is expected at 0.7%. The data is unlikely to have much impact as it was impacted by the third-wave coronavirus outbreak.
The U.S. economic reports may be a more significant factor. Consumer Confidence, Chicago Manufacturing Purchasing Managers' Index, and Case-Shiller Home Price data are available.
Firm West Texas Intermediate oil prices, underpinned by broad US dollar weakness, also support the Canadian dollar. However, further gains may be hard to achieve, thanks to China and developments by the Organization of the Petroleum Exporting Countries.
China’s Manufacturing and Non-Manufacturing PMI reports were weaker than expected.
The dip was attributed to a combination of enhanced government regulation enforcement and chip shortages. Analysts are concerned that if the slowdown continues, it will harm global growth.
Oil traders are concerned about the China data and next week's OPEC and friends meeting. The cartel is expected to increase crude production by 500,000 barrels/day, continuing the reversal of coronavirus-sparked cuts.
EUR/USD broke above $1.1800 and accelerated to $1.1844. The gains were fueled by month-end U.S. dollar selling pressures and surprisingly robust eurozone inflation. August Consumer Product Index surged to 3.0% y/y, compared to 2.2% in July, which is well-above the European Central Bank inflation target of 2.0%. The results are unlikely to impact ECB monetary policy as the gains were due to transitory items.
The ADP employment report is expected to show an increase of 638,000 jobs in August. FX markets will react to a higher-than-expected result, hoping it bodes well for Friday’s non-farm payrolls.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
