The Canadian dollar is drifting lower due to the deterioration of global risk sentiment.
USD/CAD rallied in Asia, then consolidated the gains in a $1.2560-$1.2591 range in Europe as safe-haven demand for U.S. dollars underpinned the greenback.
A slew of anti-business regulatory moves by Chinese authorities that began in February came to a head yesterday when education companies were caught in regulatory crosshairs. China’s Shanghai Shenzhen CSI 300 index plunged 3.53% overnight, adding to the 3.2% drop on Monday. Investors in Chinese stocks have lost over $1.0 trillion since February.
European investors took note, and the major indices are all trading in negative territory. Wall Street futures are modestly lower, supported by hopes for strong earnings reports by Alphabet, Amazon, and Microsoft at the end of the day.
Oil prices are a tad higher, while gold prices have inched lower. U.S. 10-year Treasury yields dipped to 1.265%, on safe-haven demand for bonds.
Nevertheless, the overnight price action should be taken with a grain of salt. The moves may be exaggerated due to thin summer markets, a lack of top-tier data, and caution ahead of Wednesday’s Federal Open Market Committee statement.
The Canadian dollar continues to garner some support from steady to firm crude oil prices, however that support is minimal as WTI oil in the $70.00-$75.00 is reflected in the exchange rate. Traders largely ignored domestic data, as the Bank of Canada appears committed to leaving interest rates unchanged until late in 2023.
Wednesday’s FOMC statement is not expected to have much impact on FX markets. Federal Reserve Chair Jerome Powell testified to Congress two weeks ago. He reiterated the Fed view that monetary policy would remain accommodative until there is “substantial further progress” in fulfilling the Fed’s mandate, “which has not been made.” Nothing has happened since then to change that outlook.
EUR/USD traded in a $1.1771-$1.1811 range. Price support stems from better than expected Eurozone data, including confidence surveys on Thursday and German Gross Domestic Product on Friday. However, the dovish European Central Bank outlook continues to limit gains.
GBP/USD chopped about in a $1.3768-$1.3930 range. Prices are supported by expectations for a steadily improving U.K. economy and the prospect for the Bank of England to tighten policy, while broad U.S. dollar demand caps gains.
Today’s U.S. data includes Durable Goods Orders for May, Case-Shiller Housing Prices, and July Consumer Confidence.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians