The Canadian dollar rallied yesterday but hit a ceiling, which knocked prices lower. Prices continued to fall overnight on the back of broad U.S. dollar strength against the commodity bloc currencies. That strength was most evident in AUD/USD, where prices dropped from $0.6884 to $0.6845.
Australian dollar sellers emerged after the minutes of the December 3 Reserve Bank of Australia meeting were released. At the time, the RBA left interest rates unchanged, and analysts believed they would stay that way in the near term. The minutes suggested that wasn’t the case. The central bank maintained its easing bias.
The New Zealand dollar continued to consolidate post-US/China trade deal gains, trading in a 0.6575-0.6603 range, with prices opening at the bottom of that range in Toronto. AUD/USD and NZD/USD selling pressure has undermined the Canadian dollar.
The British pound was centre stage overnight. GBP/USD plummeted from $1.3334 to $1.3156 and is hovering just above the low in early Toronto trading. Renewed Brexit fears fueled the selling. U.K. Prime Minister Boris Johnson said his government would enact a law that would make it illegal to extend the Brexit transition beyond 2020. Analysts are worried that unresolved transition issues would risk a very disorderly exit in December 2020. Thin, pre-Christmas holiday markets acerbated the move as did disappointing U.K. economic data. The U.K. Industrial Trends Survey-Orders were -28 compared to -26 in November, m/m. The pain from that data was alleviated by a steady U.K. employment report, even though Average earnings, including bonus were a tad worse than forecast.
EUR/USD traded with a bid, supported by demand for EUR/GBP and modestly bullish technicals. The short term outlook for EUR/USD is bullish while prices are above $1.1110, looking for a break above $1.1190 to lead to 1.1250. Better than expected Euro-zone trade data also supported prices.
USD/JPY traders ignored the price action elsewhere and the currency pair traded in a narrow 109.50-62 range, in part because U.S. Treasury yields were steady.
FX risk sentiment is mildly positive because of the prospects of a Phase 1 US/China trade deal. Yesterday, White House Economic Advisor Larry Kudrow suggested the deal means U.S. exports to China would double. He also said that Phase 1 would be signed in early January.
Oil traders like the news of the trade deal and also the previously announced increased crude production cuts by Russia and the Organization of the Petroleum Exporting Countries. West Texas Intermediate has managed to hang on to gains above $60.00/barrel in early Toronto trading.
Today, U.S. November Building Permits, Housing Starts, Industrial Production and Capacity Utilization reports are released. Statistics Canada releases Manufacturing Shipments.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians