The Canadian dollar is suffering from a global bout of negative risk sentiment, with sliding oil prices exacerbating the pain.
USD/CAD soared from $1.2595 in Asia to $1.2805 in Toronto on Monday morning. It then consolidated the gains in a $1.2735-1.2785 range overnight, only to start today’s session almost unchanged from where it opened yesterday. The USD/CAD technical picture is bullish. The move above the 200-day moving average at 1.2623 followed by the breach of major resistance at 1.2650 targets further gains to $1.2900.
Global risk sentiment took a turn for the worse on Monday. A surge in coronavirus delta-variant cases in many regions spooked equity traders and stock markets plunged. Wall Street closed deep in the red with the Dow Jones Industrial Average losing 726 points.
U.S. 10-year Treasury yields collapsed. They were 1.304% on Friday and plunged to 1.177% Monday. Prices barely recovered overnight, and 10-year yields are at 1.185%
Asian equity markets followed Wall Street’s lead and traded deep in the red. That wasn’t the case in Europe. Bargain hunters and profit takers emerged to lift the major European indexes higher, with S&P 500 and DJIA futures following suit.
West Texas Intermediate (WTI) oil prices dropped 8.0% since Friday, and that plunge fueled USD/CAD gains. Sellers emerged on concerns that the spread of the delta variant coronavirus would derail the global economic recovery and reduce oil demand, just as the Organization of the Petroleum Exporting Countries increases production by 400,000 barrels per day, starting August 1.
EURUSD continued to consolidate recent losses, trading in an uninspiring $1.1773-$1.1802 range. German Producer Price Index data was a tad softer (actual 1.3% vs May 1.5%) than previously, but not a factor. Traders are biding their time until Thursday’s European Central Bank meeting.
GBP/USD dropped to $1.3629 from $1.3688 overnight and is down 0.68% from Monday’s New York open. Two Bank of England officials downplayed the risk that the BoE would raise interest rates soon.
AUD/USD and NZD/USD are trading near session lows. The Reserve Bank of Australia minutes did not reveal anything new but reminded traders that interest rates would remain unchanged until 2024. AUD/USD selling was exacerbated by spreading coronavirus cases and new lockdown measures.
Today’s U.S. data includes Building Permits and Housing Starts.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians