USD/CAD – Canadian Dollar Rally Becomes Rout

The Canadian dollar was on the march early yesterday morning, but things soon turned sour quickly under a wave of risk aversion. China announced plans for a new National Security Law, aimed at Hong Kong, which many fear will significantly reduce Hong Kong’s autonomy. U.S. President Trump promised that “if it happens, we will address that issue very strongly.”

China may be taking a page from Russian President Vladimir Putin’s book. He annexed the Crimea despite world outrage, and he still has it.

China may be looking for the same result.

The Hong Kong news added another layer of tension in U.S./China relations. They were already deteriorating after Trump took to Twitter to express outrage over China’s handling of the coronavirus pandemic.

China also spooked markets when they opted against providing a 2020 Gross Domestic Product growth forecast, due to disruptions from the pandemic. The news raised fears that the global economic recovery may be in jeopardy.

The stampede to buy U.S. dollars crushed a Canadian dollar rally that was threatening to accelerate. USD/CAD dropped from $1.4074 at Monday’s New York open to a low of $1.3867 yesterday.

When the risk sentiment turned negative, USD/CAD soared. The rally continued overnight, fueled by stop-loss buy on the move above $1.3960, which took prices to $1.4034. They drifted down to $1.4005 in early Toronto trading, ahead of today’s release of Canadian retail sales data for March, which is expected to decline 10%. No one will be surprised as COVID-19 lockdown measures have led to closures of most retail outlets.

GBP/USD is under pressure after rallying from $1.2072 on Monday to $1.2287 yesterday. Prices have retreated to $1.2177 in early Toronto trading. The China news weighed on prices as did weak U.K. data and bearish comments from Bank of England Deputy Governor Dave Ramsden. The U.K. announced a record budget deficit and a 22.6% drop in Retail Sales for April.

Ramsden echoed comments from other BoE officials and warned of a possible increase in Quantitative Easing at the June meeting. He also didn’t rule out the possibility of negative interest rates.

EUR/USD dropped as intraday technicals flipped to bearish from bullish, on the back of widespread U.S. dollar demand. AUD/USD and NZD/USD were in the same boat and followed EUR/USD lower.

There are not any U.S. economic reports today, and trading will dry up this afternoon as Americans try to get a jump on their long weekend. Monday is Memorial Day in the U.S.

Rahim Madhavji is the President of, a Canadian currency exchange that provides better rates than the banks to Canadians