Daily Currency Update

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Rough waters ahead for CAD?

CAD - Canadian Dollar

Canada’s economy grew 1.2% month over month in August, StatCan announced this morning.

Because of the strong economic rebound this summer, Canadians have replaced about three fourths of the jobs lost during the initial COVID-19 lockdown. However, new cases have averaged about 2,500 infections each day and restrictions are back on the table.

Demand for the CAD has been choppy. In part, equity markets have flattened out ahead of the 2020 US Presidential election on Tuesday.

Key Movers

Extended lockdown restrictions across the continent and the promise of additional monetary policy easing from the ECB cast a pall over currency markets, as the outlook for macroeconomic performance looks grim.

Majority of investors are fixated on the final stage of Brexit discussions, which restarted yesterday and there are still a few areas of disagreement. According to the latest headlines, Brussels rebuffed new UK proposals on state subsidies. Monday morning sees the release of UK Manufacturing PMI, which will likely leave the market unchanged, despite the figure posted.

The Australian dollar edged near the psychological 0.70 handle through trade on Thursday, drifting lower after having failed to respond to improving market sentiment. Having given up 0.7050, the AUD marked fresh intraday lows at 0.7005 despite a rebound in equities and other risk assets. With little of note on the domestic docket, the AUD suffered a sell-off by association, as markets looked to shed growth and commodity correlated assets amid a sharp correction in the euro. Investors have been reluctant to extend AUD upside beyond 0.7150 this week, as expectations for an RBA policy adjustment and the effects of COVID-19 weigh on risk demand in the lead up to next week’s US election. While seemingly well supported above 0.70 for now, investors have sidelined bets ahead of next week’s risk events. A dovish surprise from the RBA and a Bond program north of AUD$150-200 billion could be the catalyst to push the AUD through this handle, while a contested and drawn-out election will weigh on risk demand and certainly prompt further AUD selling through the short-term.

Expected Ranges

EUR/CAD: 1.552 - 1.558 ▼

GBP/CAD: 1.719 - 1.727 ▼

AUD/CAD: 0.935 - 0.939 ▲

USD/CAD: 1.329 - 1.336 ▼