The Canadian dollar was in demand overnight—month-end demand. The S&P 500 is poised to close out the month with an 11.0% gain, and that means some portfolio managers will need to buy Canadian dollars to rebalance their hedges. USD/CAD fell from $1.2998 in Asia to $1.2952 in early Toronto trading.
It has been a good month for the Canadian dollar but not nearly as good as it has been for the New Zealand and Australian dollars. Those currencies seriously outperformed the Loonie. NZD rallied 6.4% and AUD rose 5.0% against the US dollar while the Canadian dollar only managed a 2.60% gain.
The AUD/USD and NZD/USD outperformance stem from their respective central banks distancing themselves from the prospect of negative rates, turning less dovish in the process. Also, both currencies benefitted from less pervasive coronavirus outbreaks. The Reserve Bank of Australia monetary policy meeting is Tuesday.
Global equity indexes are closing the month with robust gains. Spain’s CAC index is up 21.6%, followed by a 16% increase in the German Dax. The S&P 500 has gained 11% as has Canada’s TSX.
Oil prices slid after reports that the Organization of the Petroleum Exporting Countries-plus Russia have not agreed to extend existing production cuts beyond December. The meeting is still in progress.
EUR/USD inched higher on the back of broad U.S. dollar weakness due to month-end flows, and improved risk sentiment from news coronavirus vaccines are close to being rolled out. The short term technicals are bullish. However, traders remain concerned about how measures to combat the second-wave pandemic will impact economic growth.
GBP/USD is in a Brexit funk. The media is full of conflicting reports around the progress of the trade talks. Hopes for a deal are underpinning prices, but caution is limiting gains.
USDJPY chopped about in a 103.84-104.33 range. Japan Retail Sales and Industrial Production data was better than expected, but short term technicals are bearish.
Canada’s federal government releases another fiscal update today. It is expected to blow the top off of the existing $343.2-billion budget deficit on a new wave of spending, due to the second-wave COVID-19 outbreak. The news may limit Canadian dollar gains if Canada’s budget performance is measured against its Australian and New Zealand peers.
U.S. Chicago Manufacturing Purchasing Managers Index and Pending Home Sales data are due.
The Canadian calendar has Raw Materials and Industrial Product Prices, as well as Building Permits.