The Canadian dollar took a pounding yesterday. FX liquidity is poor because it is the last weeks of summer, and traders were already jittery ahead of U.S. Federal Reserve Chair Jerome Powell’s speech today at 10: 00 am ET. The news of a terrorist bombing at the Kabul Airport sparked a wave of risk-aversion U.S. dollar demand.
The Canadian dollar underperformed overnight. AUD/USD and NZD/USD recovered all of yesterday’s losses and opened unchanged, while the Canadian dollar is 0.51% lower.
There is a lot of speculation around Powell’s speech today, in part due to its title; “Macroeconomic Policy in an Uneven Economy.” Many analysts are anticipating hints, if not an announcement, that the Fed may begin tapering in September. Other analysts believe if tapering occurs, it won’t happen before November.
There are no shortages of Fed policymakers advocating for an early start to tapering.
Yesterday Dallas Fed President Robert Kaplan said that if he continues to see progress in the economy between now and the September meeting, “I’m going to be suggesting that we should move toward announcing a plan as early as our September meeting and beginning our tapering process in October.”
St Louis Fed President James Bullard agrees. “We probably don’t need the asset purchases at this point.”
Kansas City Fed President Esther George told Bloomberg that tapering should start this year, noting the Fed has reached its criteria of “substantial further progress.”
Those comments underpinned the US dollar against the G-10 majors and the Canadian dollar.
EUR/USD consolidated yesterday’s losses in a $1.1743-$1.1770 range and is trading with a mild bid. Part of the reason is that comments from European Central Bank officials Luis de Guindos and ECB Chief Economist Philip Lane suggest the central bank may adopt a less dovish tone at their next meeting on September 9.
GBP/USD is recouping yesterday’s losses and rallied from $1.3681 to $1.3720 in New York. The currency remains under pressure following a string of weaker than expected economic reports, which reduced the risk of a near-term rise in interest rates.
USD/JPY dropped yesterday due to safe-haven yen demand following the Afghanistan terror attack but as risk aversion faded, prices rallied, alongside steady to firm US 10-year Treasury yields which are at 1.348%
AUD/USD and NZD/USD tracked broad U.S. dollar movement, with AUD/USD traders ignoring weaker than expected retail sales data.
Canada Industrial and Raw Materials Price index data is due but will be overshadowed by Jackson Hole.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians