The Canadian dollar dropped in Asia, then recouped its losses in Europe. A bout of risk aversion sentiment stemming from Chinese regulatory actions knocked the commodity currency bloc for a loop.
Chinese regulators banned companies that offer tutoring on school curriculum from going public or raising capital; listed firms may no longer acquire or invest in firms teaching school subjects. The move followed on the heels of regulatory actions against Chinese internet companies.
China also increased restrictions related to local state government financing vehicles, and the People's Bank of China asked lenders to increase mortgage rates for first-time homebuyers.
The China Shanghai Shenzhen CSI 300 fell 3.22% to 4,925.30 on the news, which soured FX risk sentiment.
Chinese diplomats got into the act as well. Vice Foreign Minister Xie Feng warned U.S. Deputy Secretary of State Wendy Sherman that the China/U.S. relationship was in a stalemate and faced serious difficulties.
European equity indexes are trading with losses, and S&P 500 futures are pointing to a lower open on Wall Street. Traders are cautious ahead of Q2 earnings reports from Tesla and the end of today and Alphabet and Microsoft tomorrow.
The Federal Open Market Committee meeting statement is Wednesday. Traders will look for insight into the taper discussions.
EUR/USD recouped Asia losses and is trading near session highs in New York. German IFO survey data missed forecasts. The Business Climate Index for Germany fell to 100.8 points in July, down from 101.7 points in June (seasonally adjusted). Companies evaluated their current business situations as somewhat better, but their expectations for the coming months were significantly less optimistic. Supply bottlenecks and concerns over newly rising infection numbers are weighing on the German economy.
GBP/USD is trading with a mildly positive tone, rising from $1.3739 to $1.3798, as fears around higher coronavirus infections fade. However, ongoing tensions between the U.K. and European Union over the Northern Ireland border may limit gains.
USD/JPY traded defensively due to negative risk sentiment. However, rising US 10-year Treasury yields limited the downside.
AUD/USD and NZD/USD traded lower due to China’s domestic actions. NZD/USD losses were exacerbated by a small drop in New Zealand’s trade surplus, but those losses were recovered by the NY open.
The Canadian dollar downtrend from the middle of June is intact and traders are awaiting fresh direction from this week’s economic data. Canada inflation and Gross Domestic Product reports are due Wednesday and Friday, respectively.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
