Canadian Dollar Update, August 28, 2020 – Canadian Dollar’s month-end rally
USD/CAD Open: 1.3067-72, Overnight Range: 1.3047-1.3132
WTI Oil is at $43.05 and gold is at $1,975.30. US markets are higher today.
For today, USD resistance is at 1.3125. Support is at 1.3083.
• Month-end portfolio rebalancing boosts Canadian dollar
• Dovish Fed suggests US rates will remain lower longer than previously expected
• US dollar opens in Toronto with losses against the major G-10 currencies
The Canadian dollar kicked it up a notch overnight, taking out resistance and accelerating higher. It wasn’t alone. All the G-10 major currencies rallied led by a 0.84% gain in the Japanese yen.
Bearish US dollar sentiment was reinforced yesterday following Fed Chair Jerome Powell’s speech.
The Fed has struggled to come to terms with stubbornly low inflation for the past few years and felt that a 2.0% inflation goal would limit their ability to spur growth and create jobs. They decided to adopt an Average Inflation Target around 2.0%. He said, “following periods when inflation has been running below 2 percent, appropriate monetary policy will likely aim to achieve inflation moderately above 2 percent for some time.” That decision won’t be based on a mathematical formula that defines average, which gives policymakers a lot of flexibility.
Also, the Fed tweaked the way they will react to changes in employment in making policy decisions. Powell said: In addition, “our policy decision will be informed by our “assessments of the shortfalls of employment from its maximum level” rather than by “deviations from its maximum level” as in our previous statement.”
In Asia, USDJPY sank after long-serving Japanese Prime Minister Abe announced he was resigning for health reasons. However, it is not immediate. He will hang around until his replacement is named.
EURUSD rallied to 1.1919 in Europe then dropped on weaker than expected German Confidence data. The dip was short-lived, and prices are at the overnight peak in Toronto trading.
GBPUSD is a big beneficiary of month-end demand flows, which helped to exaggerate its rally from 1.3168 to 1.3314 in Toronto, today.
The Canadian dollar underperformed its antipodean peers. AUDUSD and NZDUSD surged on broad US dollar sentiment following Mr. Powell’s speech. AUDUSD got an extra boost after reports the number of new coronavirus cases fell.
Canada Q2 GDP is forecast to have dropped 39.7% y/y. The data is stale and shouldn’t matter to FX traders, especially if June GDP data meets the forecast for a 5.6% gain which it did at 6.5%.
There are plenty of US economic reports today, but the results may not have much impact because of Powell’s speech. The data includes Michigan Consumer Confidence, Chicago PMI, Wholesale Inventories, and Personal Consumption and Expenditures.
Today’s Suggested Range USD/CAD: 1.3030 – 1.3130