USD/CAD – Canadian Dollar Gains

The Canadian dollar rallied with the rest of the G-10 major currencies, although the rally lagged the rest of the currencies. The Japanese yen was the exception. Canadian dollar traders hoping for improved guidance from today’s top-tier domestic economic data will be disappointed. FX moves are driven by the prevailing U.S. dollar sentiment, and not any “made-in-Canada” factors.

Inflation in Canada is forecast to have fallen 0.1% m/m, unchanged from the results in August. Its impact on USD.CAD trading will be minimal as the Bank of Canada is well aware of the weak data, and it won’t change anything at the next policy meeting. Retail sales are expected to rise 1.1%, the same as they did in August. However, retail sales, ex-autos are forecast to rise 0.9% m/m compared to the -0.4% drop previously. The results should not have an impact on the Canadian dollar, as traders are focused on U.S. stimulus talks.

House Speaker Nancy Pelosi’s Tuesday midnight deadline for a COVID-19 Relief bill has passed, but markets are encouraged by news that the two sides are still talking. However, Senate Majority Leader Mitch McConnell is reportedly opposed to the proposed $2-trillion deal, saying it would split the caucus. Nevertheless, the U.S. dollar was sold across the board.

GBP/USD was the best performing G-10 currency overnight, rising from $1.2946 to $1.3070 in New York. Traders are betting that the European Union and U.K. will reach a Brexit trade agreement. EU Chief Negotiator Michel Barnier told the EU Parliament that he thinks a deal is possible while complaining about Britain’s negotiation strategy, saying words to the effect that Britain can’t have her cake and eat it.

EUR/USD rallied from $1.1823 to $1.1870 but dropped to $1.1840 in New York trading. Prices are supported by broad “risk-on” sentiment from hopes of a U.S. stimulus deal, and lingering support from yesterday’s “social bond” issue.

However, coronavirus concerns and political issues with the EU siding with Greece in its dispute with Turkey may limit gains.

USDJPY is trading at 104.83 after falling from 105.52. A surge in U.S. Treasury yields, which rose from 0.76% to 0.82% fueled selling pressures. The Bank of Japan is still undecided about extending emergency stimulus according to a BoJ official.

The U.S. economic calendar is empty. U.S. stimulus headlines will determine FX direction.

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