Canadian Dollar Update, September 1, 2020 – Canadian Dollar rides US Dollar slide
USD/CAD Open: 1.3008-12, Overnight Range: 1.2994-1.3078
WTI Oil is at $42.99 and gold is at $1,979.00. US markets are higher today.
For today, USD resistance is at 1.3102. Support is at 1.3012.
• New month, same story-sell US dollars
• EURUSD ignores data flirts with 2-year high
• US dollar down against major G-10 currencies
The Canadian dollar dipped below the psychologically important USDCAD 1.3000 level very briefly, touching 1.2996 before popping back. Just below is the 77.00 cent level, which is what a Canadian dollar is worth in the USA.
The Canadian dollar rally is not a Canadian dollar story. Instead, it is the US dollar story, and that is a tale of a too dovish Federal Reserve that is on record for saying US interest rates will stay low for an extended period.
Last week, Fed Chair Jerome Powell announced a major shift in the Fed’s thinking. He said that instead of aiming for a 2.0% inflation goal, they would adopt average inflation targeting policy of around 2.0%. Mr. Powell justified the change as necessary to prevent choking of an economic recovery by being forced to increase rates if inflation hit 2.0%. What he left unsaid was why the change was required at this juncture when the Fed has been unable to get inflation to 2.0%. Yesterday, Fed Deputy Chairman Richard Clarida noted that Fed policy might have gone astray by using models that were not effective in a low rate environment.
The US dollar slide that started in the middle of May is continuing unabated on the first day of September. EURUSD is approaching levels last seen in May 2018, while GBPUSD has recovered more than ½ of its post-Brexit referendum losses.
Euro and GBP traders are ignoring the rising risk of a ‘no-deal” Brexit. EU and UK officials have been negotiating a trade deal ahead of the thirty-first day of December deadline. If an agreement isn’t reached, the UK will leave the EU without a trade deal and be subject to World Trade Organization rules, which are far less favourable for trade. GBPUSD traders are ignoring that risk.
EURUSD traders are ignoring the risks from election tensions in Belarus which has the EU on the opposite side of Russia. The EU has problems in the eastern Mediterranean Sea. They are trying to dissuade Turkey from its aspirations toward Greek territorial waters and the massive energy deposits located there. France and Italy have sent warships to the area in support of Greece, while Turkey has dispatched its naval vessels.
The US election is another source of concern as President Trump fires his trade cannon at the EU, Canada, and China.
US ISM Manufacturing PMI is due today.
Today’s Suggested Range USD/CAD: 1.3000 – 1.3100