The Canadian dollar traded in a narrow range overnight and opened in New York unchanged from Thursday’s closing level. FX traders are cautious due to month-end portfolio rebalancing flows and due to subdued global equity trading activity.
Yesterday U.S. Q1 Gross Domestic Product grew 6.4% y/y, fueled by a 10.7% jump in consumption. The Bureau of Economic Analysis said, "In the first quarter, government assistance payments, such as direct economic impact payments, expanded unemployment benefits, and Paycheck Protection Program loans, were distributed to households and businesses." The news underpinned 10-year US Treasury yields, which gave the U.S. dollar a bid.
Risk sentiment became subdued after China official Purchasing Managers Index at 51.1 missed the 51.7 forecast. Asia equity indexes closed with slight losses, and European bourses cannot get much traction.
U.S. equity futures suggest a negative open on Wall Street.
The U.S. GDP results contrasted sharply with today’s Eurozone GDP data. The Eurozone fell into a technical recession when Q1 GDP fell 1.8% y/y and 0.6% q/q. The results were not unexpected due to the slow vaccination roll-out and coronavirus lock-down measures. Eurozone inflation climbed 1.8%, but the gain is due to pandemic base effects and ignored. Nevertheless, the data weighed on EUR/USD, which fell from $1.2126 to $1.2079 in New York trading.
GBP/USD dropped alongside EUR/USD losses because of profit-taking and broad U.S. dollar demand. GBP/USD managed to gain 0.99% in April, but it is the worst-performing G-10 major currency. The reason was new EUR/GBP demand as the Eurozone vaccine roll-out improved, and lockdown measures started to ease. The short term GBP/USD outlook is positive, above $1.3880, supported by a series of better than expected U.K. economic data recently, including robust Retail Sales and Service PMI indicators.
USD/JPY snapped its April downtrend on Monday, and prices climbed to 109.20 from 107.98. A surge in Treasury yields fueled the gains.
Prices have been consolidating those gains above 108.50 since Wednesday’s Federal Open Market Committee meeting.
AUD/USD and NZD/USD price action mirrors U.S. dollar sentiment. The New Zealand dollar outperformed AUD and CAD in April. The antipodean currencies benefit from the positive global growth outlook, but both currency pairs ignored the China PMI reports today.
Canada February GDP is expected to rise 0.5%. A better than expected result combined with expected USD/CAD selling due to portfolio rebalancing demand could trigger additional USD/CAD losses.
Today’s U.S. data includes Personal Consumption Expenditures (PCE), Chicago PMI, and Michigan Consumer Sentiment.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
