The Canadian dollar gave back all yesterday’s gains overnight but traded inside yesterday’s range. Statistics Canada reported the August trade surplus widened to $1.94 billion from $0.74 billion in July, but the news was not a factor for traders. Instead, they took their cure from better-than-expected U.S. Services Purchasing Managers Index which indicated the U.S. services sector continued to grow, and that improved risk sentiment. U.S. stock markets recovered nearly all of Monday’s losses and closed with gains.
Asia equity traders did not follow Wall Streets' lead. They sold stocks across the board with Japan’s Nikkei 225 leading the charge lower, losing 1.1%. Traders continue to be unnerved by China’s aggressive regulatory crackdown, solvency woes for major Chinese property developers, and Beijing’s aggressively hostile actions toward Taiwan.
China also stoked fears of higher energy prices. A few days ago, authorities told state-owned Chinese energy companies to lock in supplies "at any cost" ahead of the winter. That statement underpinned oil and natural gas prices around the globe. Traders are concerned that the inflationary impact of rising energy prices will force central banks to raise rates ahead of schedule.
The negative risk sentiment continued in Europe with the major bourses suffering steep losses.
Germany’s Dax fell 2.11% while the UK FTSE 100 lost 1.67%.
U.S. 10-year Treasury yields reflected interest rate worries as they soared from 1.477% yesterday to 1.57% today.
EUR/USD fell from $1.1600 to $1.1530 due to negative risk sentiment, economic growth concerns from rising energy prices, and widespread U.S. dollar strength. Prices were also weighed down by weaker than expected German factory orders which fell 7.7% m/m in August, compared to a gain of 4.9% in July.
GBP/USD erased Tuesday’s rally and fell to $1.3545 from $1.3630. Losses were exacerbated by weaker than expected Construction PMI (actual 52.6 vs 55.2 in August). However, the prospect of an early rise in U.K. interest rates and bullish long term technicals provided some support.
USD/JPY rallied with the jump in 10-year U.S. Treasury yields although gains were hampered by negative risk sentiment.
NZD/USD was the focus in early Asia trading. The Reserve Bank of New Zealand was expected to raise the OCR interest rate to 0.50% from 0.25% and they delivered. The RBNZ indicated that further rate hikes were in the cards. NZD/USD rallied on the news, rising to 0.6978, then dropped as global risk sentiment was negative. AUD/USD followed NZD/USD moves.
U.S. ADP employment data is due and expected to show a gain of 428,000 jobs.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
