The Canadian dollar sank at the Asia open. It wasn’t alone. A brief bout of panic sparked U.S. dollar demand when gold prices went into free-fall.
The Asia session opened without two major trading centers. Singapore and Japan were closed for national holidays, and FX liquidity wasn’t just poor; it was scarce. Gold prices closed at $1,784.71 on Friday and had a negative bias. When this week’s first session began, predatory gold traders saw an opportunity. They drove prices down, triggered a mass of stop-loss sell orders in the $1,750.00 area, and prices plummeted to $1,684.71 before buyers emerged. Prices quickly bounced to $1,740.00 by the New York open.
Oil traders were not unscathed. The same market conditions as gold applied to crude markets. West Texas Intermediate (WTI) closed Friday at $67.86/barrel. Prices dropped nearly 4% to $65.17. Thin markets were one factor for the drop, but traders were also spooked by softer Chinese trade data, which suggested that global demand may be slowing.
The Canadian dollar started the week on the defensive, and the short term technical outlook points to further weakness ahead. The Canadian Labour Force Survey, released Friday, missed the forecast. Canada added 94,000 jobs in July, which is still a reasonably positive result.
However, the Canadian data was not a factor for traders. Their eyes were on the U.S. non-farm payrolls report and its implications for U.S. monetary policy.
The U.S. gained 943,000 jobs in July, well above forecasts and May and June results were revised higher, to the tune of 119,000 jobs. A handful of Federal Reserve officials opined that robust employment data might meet the requirement of substantial further progress in achieving the Fed's mandate.
The U.S. dollar rallied after the data and consolidated the gains overnight.
EUR/USD dipped to session lows in early Asia, touching $1.1743 before grinding higher to $1.1763 by the New York open. The single currency consolidates losses following the U.S. employment data and has a negative outlook due to divergent European Central Bank and Fed monetary policies.
GBP/USD traded in a 1.3840-1.3980 band supported by the UK economic recovery outlook and BoE rate hike speculation.
USDJPY consolidated Friday’s gains in a 110.12-110.32 range. Rising US 10-year Treasury yields, which have climbed from 1.177% on Wednesday to 1.277%, boosted prices.
The USD and Canadian economic data calendars are empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
