June 25, 2020

USDCAD Open (6:00 am) 1.3610-14, Overnight Range: 1.3612-1.3665

  • Fitch Ratings Inc downgrades Canada to AA+; outlook stable
  • Surging US COVID-19 cases leave markets risk-averse
  • Rise in US jobless claims offsets better Durable Goods data
  • US dollar remains higher against G-10 majors since yesterday’s open.

Percent change in US dollar since Thursday’s NY open

A screenshot of a cell phone Description automatically generated

Source: Saxo Bank/IFXA

USDCAD is flexing its muscles.  It climbed from 1.3490 on Tuesday, to 1.3665 in early European trading today.  Prices retreated to 1.3612 at the NY open.  Most of the rally can be attributed to yesterday’s shift to negative risk sentiment stemming from a surge in US coronavirus cases.

The US reported 38,173 infections on Wednesday: the highest single day total yet.  American’s are finally learning that social distancing, and masks help prevent COVID-19, not their Constitution.

Wall Street traders bailed, driving the Dow Jones Industrial Average down 2.72%, which set the tone for Asia markets The Nikkei 225 and Australia’s ASX fell 1.22% and 2.48%, respectively.  European bourses did not follow suit.  Better than expected German Consumer Confidence (actual -9.7 vs forecast -12)

Negative risk sentiment powered USDCAD higher, but falling oil prices and Fitch Ratings Inc, greased the skids.  Fitch downgraded Canada’s Long-Term Foreign Currency Issuer Default Rating to AA+; outlook stable.  Oil prices slid on the back of rising US inventories and the prospect of slower growth.  Yesterday, the IMF forecast Canada’s economy would shrink by 8.4% in 2020, alongside the global economy falling 4.9%.

USDCAD Technicals:  The intraday USDCAD are bullish.  The overnight breech of downtrend line resistance from June 1, at 1.3610 suggests a short term bottom is in place at 1.3310.  The breach also opened the door to a test of the March downtrend line which comes into play at 1.3790.  For today, USDCAD support is at 1.3590and 1.3550.  Resistance is at 1.3660 and 1.3690.  Today’s Range 1.3610-1.3690

Chart: USDCAD daily

A picture containing clock Description automatically generated

Source:  Saxo Bank

FX Recap and outlook:  US Weekly Jobless Claims were higher than forecast, rising 1.48 million, but still better than last week.  The increase soured the impact of the better than expected Durable Goods Orders report which rose 15.8% in May compared to forecasts of a 10.6% increase.

European equity indices may have returned into positive territory following the German Consumer Confidence report, but that success has not translated into S&P futures which are still in the red. EURUSD continues to drift lower and is trading at the bottom of its 1.1209-1.1259 range in NY. Risk-aversion sentiment, and the latest EU/US trade tensions are weighing on prices ahead of today’s US data dump.

GBPUSD is consolidating today’s losses in a 1.2406-1.2463 range and is trading at 1.2440.  Prices are supported by the rebound in the FTSE from its earlier lows, but gains are capped by broad US dollar demand.

USDJPY traded in a narrow range.  Prices were supported by US dollar demand, but gains offset by safe-haven demand for yen and a drop in US 10-year Treasury yields from 0.725% to 0.669%.

AUDUSD and NZDUSD traded lower due to negative risk sentiment.