The Canadian dollar tested support and resistance levels since Friday, and both levels remain intact. FX markets are cautious to start the week.
China trade data was better than expected, with the trade surplus rising to $58.3 billion iU.S. n August, compared to $56.6 billion in July. The news had little reaction among G-10 FX traders, who remain leery about the impact of China’s regulatory crackdown and the official hostile rhetoric around Hong Kong and Taiwan.
The Reserve Bank of Australia monetary policy decision was dovish. The Overnight Cash Rate (OCR) was left unchanged at 0.10%, but it tweaked its Quantative Easing tapering program. The RBA had planned to reduce the $4.0 billion pace of bond purchases to $3.0 billion in November, but the COVID-19 outbreak forced it to delay the reduction until "at least February."
The bank also repeated that it would not increase interest rates until inflation is sustained above 2-3%.
AUD/USD dropped from $0.7467 to $0.7392 on the news. NZD/USD dropped alongside AUD/USD but not to the same degree, and it sent AUD/NZD down to 1.0382 from 104.50.
FX traders are re-evaluating the impact of the sharply weaker than expected non-farm (NFP) payrolls report released Friday. The U.S. only added 235,000 new jobs in August. Analysts were expecting 750,000. The initial reaction to selling U.S. dollars has been fully reversed.
That’s because the July and June results were revised higher, and the unemployment rate ticked lower to 5.2%.
The NFP report did not convince bond traders that the data would deter the Fed from starting to taper in 2021. Treasury yields climbed to 1.36% from 1.288% on Friday.
EURUSD rallied to $1.1905 post-NFP and retreated to pre-NFP levels in early NY trading today, dropping to $1.1859. The mid-August EURUSD uptrend is intact above 1.1830, supported by a recent spate of positive Eurozone economic reports. Eurozone Gross Domestic Product rose 2.2% in Q2, and German ZEW data remained firm.
GBP/USD dropped from $1.3856 to $1.3769 in part due to EUR/GBP demand following the Eurozone data release. Traders ignored hawkish comments from Bank of England policymaker Michael Saunders suggesting a rate hike in 2022.
There are not any U.S. or Canadian economic reports of note available today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
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