The Canadian dollar soared on the wings of widespread U.S. dollar selling against the major G-10 currencies yesterday. That rally took a breather overnight. USD/CAD traded at $1.2825 in Asia and $1.2709 in New York on Thursday, then rallied to $1.2774 overnight.
As has been the case lately, the USD/CAD price action was directed by global risk sentiment. That sentiment turned negative after a rash of bad news. Traders are disappointed due to the U.S. government’s failure to enact a stimulus bill to provide additional COVID-19 Relief to Americans.
The issue is exacerbated by the high numbers of new coronavirus cases across America. There were more than 219,000 COVID-19 cases reported yesterday.
News that the U.S. Food and Drug Administration endorsed Pfizer’s vaccine is positive, but not really helpful to the infected people.
Risk sentiment was also cautious after Asia equity indexes traded negatively, and many European bourses were down close to 1.0%. Gold prices fell and crude prices retreated from their peak levels.
GBP/USD dropped like a stone following very disappointing Brexit headlines. European Union Commission President Ursula von der Leyden reportedly told E.U. Commission members that a “No-deal” Brexit was the most likely outcome. U.K. Prime Minister Boris Johnson echoed her words. GBP/USD plunged from $1.3323 to $1.3136 in Toronto.
The GBP/USD plunge fueled elevated negative risk sentiment and knocked the Canadian dollar and the other commodity bloc currencies lower.
EUR/USD traded with a negative bias in a $1.2111-$1.2162 range. Prices continue to be supported by EUR/GBP demand and yesterday’s European Central Bank actions.
The European Central Bank delivered as expected, and then some. Interest rates were left unchanged and the Pandemic Emergency Purchase Program (PEPP) was increased by €500 billion and extended six months. The bank cut its inflation forecast for 2020 to 0.2% from 0.3%, but the 2021 forecast remained at 1.0%. Growth forecasts were reduced as well, with 2021 predicted at 3.9% compared to 5.0% previously.
ECB President Christine Lagarde tried a bit of verbal currency intervention. She replied to a question saying “We do not target the exchange rate, but clearly exchange rates and particularly the appreciation of the euro play an important role and exercise downward pressure on prices. So we will monitor it, we will continue to monitor it very carefully going forward.”
FX traders will ignore economic data in favour of Brexit and U.S. stimulus news.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians