The Canadian dollar is plumbing the depths of three-year lows in early New York trading. Commodity prices continue to climb, leading to some analysts speculating about a commodity "super-cycle." That is good news for the Canadian dollar as Canada’s economic growth is still heavily reliant on natural resource exports.
The Canadian dollar continues to grind higher due to expectations for a robust post-pandemic economic boom, fueled by massive fiscal and monetary stimulus from Canadian and U.S. governments, in a low-interest-rate environment.
U.S. Federal Reserve policymakers were out in force yesterday, unanimously pushing back against the notion that the Fed will need to raise interest rates if inflation rises. Fed Vice Chair Richard Clarida said they were still a long way from their goals and now was not the time to talk about tapering. Boston Fed President Eric Rosengren echoed Clarida’s remarks, saying they need to see "substantial improvement." Cleveland Fed President Loretta Mester said she would not consider an increase in inflation this year to be sustainable.
China created a bit of turmoil in FX markets overnight. Beijing announced it was suspending the China and Australia Economic Dialogue (CAED ), blaming Australia’s disruption of cooperation for the action. Traders were spooked. AUD/USD dropped to $0.7703 from $0.7757, and it had a domino effect on the major currency pairs. NZD/USD fell from $0.7227 to $0.7187, taking EUR/USD and GBP/USD down with int. USD/CAD jumped to $1.2287 from $1.2265.
It didn’t last. Traders quickly discovered that the last meeting of the China and Australia Economic Dialogue was in 2017.
Traders ignored rising U.K. and France tensions. British and French navy vessels are sailing around Jersey as both countries attempt to enforce their fishing rights under the new Brexit agreement.
EUR/USD dropped in Asia following the China/Australia headline but quickly recovered, climbing from $1.1994 to $1.2052. The single currency got an added boost from higher than expected German Factory Orders (actual 3% vs February 1.4% m/m) and a 2.7% m/m rise in March Retail Sales.
The EUR/USD failure to extend losses below $1.2000 keeps gains to $1.2150 in focus.
GBPUSD broke above the top of its overnight $1.3859-$1.3922 range after the Bank of England upgraded growth and inflation projections.
GDP is forecast to grow 7.25% in 2021 while inflation rises to 2.3%.
U.S. data includes Jobless Claims (forecast 540,000). The Canadian economic calendar is empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
