The Canadian dollar opened unchanged in Toronto from yesterday’s close. EUR/USD and GBP/USD rallied, but the Canadian dollar did not join the party. Instead, it dropped. The domestic currency may be suffering from the perception that poor economic performance in the U.S. will weigh heavily on Canada’s post-pandemic rebound. Weak oil prices may also be weighing on the Canadian dollar. Canada’s economic performance will take centre stage today. May Gross Domestic Product is expected to rebound to 3.5% m/m from April’s 11.6% plunge.
If so, the Canadian dollar may attract some buyer, and revisit this week’s peak levels. Additional demand may come from portfolio managers. U.S. stock market performance in July suggests a need to buy Canadian dollars today.
The Organization of the Petroleum Exporting Countries and Russia announced emergency crude production cuts of 2.2 million barrels/day in April, to shore up oil prices. The move was successful as West Texas Intermediate (WTI) the North American benchmark price rose from -$37.63 at one point in April, to $42.34 in the middle of July. Prices have flitted between $39.30-$42.34 since.
FX markets were topsy-turvy overnight. EUR/USD and GBP/USD gave back most of their Asia gains during the European session. AUD/USD and NZD/USD lost ground, and USD/CAD opened unchanged. The size of the U.S. dollar losses in July, combined with waning month-end portfolio rebalancing flows and renewed coronavirus concerns, limited FX action.
China Non-manufacturing Purchasing Managers Index at 54.2 was better than forecast but a tad worse than the 54.4 reported. The positive China data underpinned AUD/USD and NZD/USD but gains were erased in Europe.
EUR/USD climbed steadily in Asia rising from $1.1846 to $1.1908 in early European trading. Prices continue to be supported by the dovish Federal Open Market Committee outlook, rising coronavirus cases, and failure to pass another stimulus bill to replace the CARES Act. Reality intruded when Euro area Q2 GDP was -12.1% q/q. The drop was expected, but it served to remind EUR/USD bulls the Eurozone economy was a long way from pre-pandemic levels.
GBPUSD is ready to close out July as the best performing-G-10 currency. Prices extended yesterday’s gains, rising from $1.3088 to $1.3143.
There were not any announcements about a breakthrough in E.U./U.K. trade talks, and there were not any blowout U.K. economic data reports. There is some talk that the bulk of the GBP/USD rally this week is due to month-end portfolio rebalancing flows.
U.S. Michigan Consumer Sentiment and Chicago PMI are due today.
Canada is closed Monday.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians