The Canadian dollar is back from the brink, and it's all due to a turnaround in risk sentiment. USD/CAD was probing resistance in the $1.2725 area in Europe on Thursday, in part, due to lingering disappointment from the Bank of Canada’s benign monetary policy statement the previous day.
Negative risk sentiment turned positive overnight. U.S. President Joe Biden initiated a call with Chinese President Xi Jinping. The White House statement said "The two leaders had a broad, strategic discussion in which they discussed areas where our interests converge, and areas where our interests, values, and perspectives diverge. They agreed to engage on both sets of issues openly and straightforwardly."
That news boosted global equity indexes and sank the U.S. dollar. The major Asia equity indexes closed higher. Japan’s Nikkei 225 gained 1.25% and Hong Kong’s Hang Seng Index soared 1.91%. European bourses joined the party but to a lesser extent. The German Dax rose 0.47% and the U.K. FTSE 100 gained 0.54%. Gold and oil prices are a touch firmer from where they closed in New York and U.S. 10-year Treasury yields are slightly lower.
Bank of Canada Governor Tiff Macklem’s speech yesterday stayed within familiar territory. He acknowledged the weaker than expected Gross Domestic Product report but put a positive spin on it by pointing out that "consumption, business investment and government spending all contributed to growth." Even so, he said the BoC has no plans to raise interest rates before the second half of 2022.
USD/CAD traders are looking ahead to today’s Labour Force Survey. Canada is expected to have gained 100,000 jobs in August, due to the impact of from reopening the economy.
The impact from the news should be limited as it will not have any near-term influence on the BoC.
EURUSD chopped about in a $1.1820-1.1850 range overnight and is stuck in the $1.1800-50 band seen all week. The ECB statement was dovish noting, "favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters." The intraday EUR/USD technicals are bearish below $1.1860.
GBP/USD rallied from $1.3834 to $1.3884, while ignoring weaker than expected U.K. July GDP (actual 0.1% m/m, forecast 0.6% m/m). The soft GDP result was blamed on the uptick in COVID-19 cases and a worker shortage. A break above 1.3900 targets 1.4000.
U.S. Producer Price Index and Wholesale Inventories are due.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
