US dollar under pressure

September 4, 2019

USDCAD Open (6:00 am EDT) 1.3316-20      Overnight Range  1.3315-1.3342

The US dollar opened this morning with losses against all the major G-10 currencies except for the Japanese yen, continuing the trend from Tuesday.  Yesterday, disappointing US August ISM Manufacturing data (Actual 49.1 vs July 51.2) knocked the US dollar for a loop.  It never recovered.   UK political theater, equity market gains, and economic data releases were center stage in Asia and Europe.

Currency gain/loss vs US dollar from New York close to New York open

UK political developments were the key focus in Asia and Europe, but they vied for attention with Australia and Chinese data.  China’s Caixin Services PMI index was 52.1 compared to 51.6 in July.  There weren’t any surprises from Australia’s data reports, which included Q2 GDP. (Actual 0.5% q/q)  AUDUSD climbed to 0.6790 from 0.6756.  A break above 0.6830 targets further gains to 0.6920.

Sterling traded nervously in Asia as the UK Parliament voted to take control of the Brexit agenda from Boris Johnson.  GBPUSD traded in a 1.2078-1.2130 range until the European open. Prices climbed steadily and touched 1.2212 in early Toronto trading. UK data was ignored.

EURUSD rallied alongside GBPUSD, supported by better than expected Eurozone Retail Sales which rose 2.2% y/y, beating the forecast for a 2.0% gain. Eurozone and Euro-area Services and Composite PMI reports were a tad better than forecast, which underpinned prices. Traders ignored incoming ECB President Christine Lagarde’s comments suggesting “highly accommodative policy is still warranted.”

USDJPY traded in a 105.84.-106.24 range, firming alongside a rise in US Treasury yields.  Bank of Japan Board Member Goushi Kataoka said that the BoJ needs to provide additional stimulus due to the China/US trade war. He is a noted dove, so his comments were not surprising.

USDCAD consolidated yesterday’s losses and opened near the bottom of its 1.3318-42 range. Traders are patiently awaiting the Bank of Canada (BoC) monetary policy statement today. The BoC is widely expected to leave Canadian interest rates unchanged at 1.75%. Analysts suggest the statement may drop broad hints of an interest rate cut at the October meeting. The July statement said, “the outlook was clouded by persistent trade tensions.” Those trade tensions worsened in August. The US Fed, RBA and RBNZ have all cited trade tensions to justify rate cuts. Why should the BoC be different?

USDCAD Technical Outlook

The intraday USDCAD technicals are modestly bearish with a break below 1.3310 targeting support in the 1.3270-1.3240 zone. The uptrend from the middle of July is still intact while prices are above 1.3270 but resistance in the 1.3340-80 area is proving sticky.  

Today’s Range 1.3270-1.3370

Chart:  USDCAD 4 hour