The Canadian dollar rallied, along with the rest of the G-10 majors, with rising stock prices feeding the move. China’s Shanghai Shenzhen 300 index soared over 16% since the beginning of the month. Traders reacted when officials suggested that fostering a “healthy bull market” is important. China appears to have beaten the coronavirus into the ground, and its economy is rebounding. China June inflation rose 2.5%, compared to 2.4% in May while the Producer Price Index improved to -3% from -3.7%.
The China stock market rally propelled Asia indexes higher, but European bourses were not as enthusiastic. The U.K. FTSE 100 is lower while the German DAX and French CAC are a tad higher. U.S. futures are mixed, suggesting a cautious open on Wall Street.
FX traders are hoping that today’s U.S. weekly jobless claims reports provide additional evidence that the economy is recovering from the impact of the restrictions imposed to combat the coronavirus pandemic. Initial jobless claims are expected to decline to 1.375 million this week, compared to last week’s 1.427-million-claim result.
Canada’s finances are a mess. The government is unable to publish a budget due to a lack of clarity on expenditures and the outlook for the economy. It’s guessing the deficit is $343.2 billion, but if history is a guide, it is far bigger than the estimate. The government expects total revenues to fall 21%, which is probably low as well, considering its tacit endorsement of the decimation of the oil industry.
Canadian dollar traders ignored the news and continued to buy the currency alongside widespread U.S. dollar selling against the majors.
It should be noted that this latest bout of U.S. dollar weakness, equity market strength, is occurring in an environment devoid of top-tier, actionable economic data, and central bank guidance. The U.S. dollar index has been locked in a 96.20-97.70 band for nearly a month. It needs a decisive break either side of the range to suggest that a new U.S. dollar trend is beginning. Until that happens, the G-10 majors will continue to chop about in their recent bands.
Once again, the U.S. and Canadian economic calendars are empty.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians