The Canadian dollar is under pressure. It is not alone. A wave of safe-haven demand for U.S. dollars washed over markets in Europe as equity markets plunged and the number of new coronavirus cases surged. Canadian economic data is mostly of interest to economists and not FX traders. That was evident on Friday when July Retail Sales data was released. Retail Sales rose 0.6%, a rather steep drop from June’s 22.7% increase. The increase was below expectations according to some analysts, points to a "V-shaped" recovery.
However, those recovery expectations may be curtailed due to a resurgence of COVID-19 cases in Ontario.
Ontario reduced the size of social gatherings to just 10 people indoors. Premier Doug Ford warned he would clamp down on outdoor social gatherings that exceed 25 people. However, there are no COVID-19 transmission concerns on public transportation, which means jammed buses, subways and streetcars are okay. The Federal government is allowing American CEOs to skip quarantine protocols when visiting Canada.
A steep rise in COVID-19 cases in the U.K., combined with an elevated risk of a no-deal Brexit, and safe-haven demand for U.S. dollars drove GBP/USD from $1.2965 to $1.2836 overnight. It wasn’t even the worst-performing G-10 currency against the US dollar. That honour went to the New Zealand Dollar. NZDUSD lost 0.53%, in part due to fears of a dovish RBNZ monetary policy meeting tomorrow.
EUR/USD continues to chop around in its well-defined $1.1760-$1.1900 range.
Prices peaked at $1.1871 in Asia, then dropped to $1.1781 in early Toronto trading. Safe-haven demand for greenbacks played a large role in the selloff, as did concerns around the European Central Bank’s Pandemic Emergency Purchasing Program.
Policymakers are debating whether to extend the program, and there is no shortage of opposition.
It was a holiday in Japan which may have exacerbated USD/JPY selling overnight, due to reduced liquidity. USD/JPY dropped to 104.01 from 104.46 on risk-aversion demand for yen and because of falling stock market prices.
There is a lot of event risk this week. U.S. Federal Reserve Chair Jerome Powell headlines a series of Fed speakers tomorrow.
The U.S. Congress is continuing to work on a new spending bill to prevent a government shut-down, which could run into hurdles due to the debate around the Supreme Court nomination.
The U.S. and Canadian economic reports will be overshadowed by Wall Street stocks market action.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
