FX & market recap:
FX markets didn’t stray too far from where they closed, overnight. The US government is hanging unemployed workers out to dry, as election gamesmanship thwarts attempts for a replacement for the CARES Act. COVID-19 flare-ups in France, Britain and in the US are cause for concern, as are ongoing China and “most of the free-world” hostilities. It wasn’t enough to spark a US dollar rally, but it put the brakes to broad US selling.
Traders are also “pulling in their horns” ahead of today’s US weekly jobless claims data and Friday’s nonfarm payrolls report. Yesterday’s feeble ADP employment report raised concerns for a spike in claims and unemployment. WTI oil traded in a $41.64-$42.42/barrel range and underpinned by the weak US dollar and Wednesday’s news that US crude inventories fell by 7.37 million barrels. Gold (XAU/USD) traded steady in a $2043.89-$2053.91 range supported by the weak US dollar, low global interest rates, and a dash of safe-haven demand from geopolitical tensions.
Canadian dollar highlights:
USD/CAD dropped to 1.3235 yesterday, just above support in the 1.3230 area. It held and prices bounced to 1.3288 overnight. USD/CAD is punching above its weight. The currency pair is free-loading on the broad-US dollar sell-off. Yesterday’s ADP report was weak, and though a poor barometer of NFP, still raises concerns that Friday’s NFP report may be weaker than expected.
A weak US economy is not helpful for the Canadian outlook, either. The US dollar is suffering from the belief that the European economy will outperform the US economy because of the rise in COVID-19 cases in America. However, the new case numbers are declining. Canada has its version of a political crisis with calls for the Finance Minister to resign. The Alberta oil patch got hit with another blow last week when Total Petroleum, wrote down $9.5 billion in oilsands assets. If they don’t see hope in Canada’s energy industry, who else will bail?
EUR/USD rallied, albeit choppily, in a 1.1839-1.1915 band. It peaked after the German Factory Orders data was released, then profit taking drove prices to the overnight low, which is where they are in early NY trading. EUR/USD has risen on the back of negative US dollar sentiment stemming from US political dysfunction, the resurgence of coronavirus cases in many US states and the perception that the European economy will outperform the US economy in the second half of the year. However, the magnitude of recent gains and the risk of a correction with nonfarm payrolls looming is making traders cautious.
British pound highlights:
GBP/USD was the best performing currency overnight. GBP/USD popped to 1.3284 after the Bank of England announcement, and that is where it sits in early NY trading. Prices were supported when the BoE said that April-June COVID-19 slump was “less severe” than expected. They lowered their 2020 forecast for unemployment from 10.0% to 7.5% and upgraded their 2020 growth forecast to -9.5% from -14%. Officials are still discussing the use of negative rates, but Governor Baily said he “did not think we are about to use negative rates, that is not the current plan.”
Asia Pacific highlights:
USD/JPY traded sideways in a 105.40-68 band. Wednesday’ weak ADP data and soft US Treasury yields weighed on prices. AUD/USD and NZD/USD moves mirror US dollar sentiment. Both currency pairs are lower on the back of profit-taking ahead of Friday’s NFP data, following this week’s strong gains.