The Canadian dollar opened in New York as the worst-performing major G-10 currency since yesterday, falling 0.83%. It wasn’t alone. The major G-10 currencies are all weaker.
There wasn’t a specific catalyst to trigger the U.S. dollar rally. Instead, a series of unrelated news, comments, and data combined to sour risk sentiment.
The U.S. dollar suffered a bout of selling following Friday’s weaker than expected U.S. employment report for August. At the time, traders concluded that the results meant the Fed would be in no hurry to begin tapering.
That view changed when U.S. markets opened on Tuesday. Rising coronavirus cases due to Delta, Lambda, and Mu variants, combined with recent Chinese government actions clamping down on various industries, raised fears of a global economic slowdown.
Surging U.S. 10-year Treasury yields added to U.S. dollar demand when yields jumped to 1.385% from 1.275%. The gains were supported by comments from St Louis Fed President James Bullard overnight. The well-known hawk repeated his call for the Federal Reserve to begin tapering Quantitative Easing purchases. He dismissed Friday’s soft NFP report saying, "There is plenty of demand for workers, and there are more job openings than there are unemployed workers." He predicted that tapering would start this year and be completed by the middle of 2022.
The Bank of Canada monetary policy meeting today does not include a press conference. Tomorrow at noon, Governor Tiff Macklem delivers a speech titled "Economic progress report: QE and the reinvestment phase."
He is unlikely to say anything about monetary policy, which would spark a reaction in financial markets due to the federal election.
EUR/USD traded with a negative bias, dropping from $1.1850 to $1.1813, due to both broad US dollar strength and positioning ahead of Thursday’s European Central Bank monetary policy meeting. The ECB is expected to reduce asset purchases but stress the need for ongoing monetary stimulus.
USDJPY rallied to 110.44 from 109.68 yesterday, coinciding with the gain in 10-year U.S. Treasury yields. Prices are also supported by speculation of a new fiscal stimulus program.
The antipodean currencies tracked US dollar moves. AUD/USD continues to be weighed down by the Reserve Bank of Australia’s dovish outlook.
There aren’t any top-tier US economic data. Canada’s Ivey Purchasing Managers Index report is due.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
