Home Daily Commentaries The risk off environment in North American equity markets today is not helping the Loonie to hold gains.

The risk off environment in North American equity markets today is not helping the Loonie to hold gains.

Daily Currency Update

The loonie has given up the gains seen after the Bank of Canada raised interest rates on Wednesday. BoC head, Stephen Poloz stated that Canada was approaching a level of neutral interest rates and removed the word “gradual” from the statement when referring to the expected pace of tightening. However, the risk-off environment since then has seen USD/CAD push back up through 1.3100 handle.

Second-tier data out of the domestic economy on Thursday saw Canadian average weekly earnings (nonfarm) rise by 2.9% on a yearly basis in August while oil prices rebounded allowing the US crude price to rise 0.8% touching $67.35.

Recent moves imply new technical levels to consider. On the downside, we see USD/CAD being relatively well supported at the 1.3029 level in the near term while topside moves are expected to meet resistance at the 1.3157.

Key Movers

The United States Dollar appreciated again across the board in overnight trading, as risk off environment continued to dominate market sentiment. The US Dollar Index futures are up hitting 96.62 overnight and increased around 0.13 per cent.

Many sources drove momentum, chief among them was the equity market. The S&P500 is on track for its 13th negative day out of 15 and is 8% lower than its late-September high. The catalysts for the falls are numerous and varied. However, the general sentiment is that there will be tighter future global growth. US-China tensions and softer earnings reports aren’t helping either. The falls in equity markets spearheading a general flight to safety across financial markets with the Greenback being a prime beneficiary of the shift in asset allocations.

US growth differentials vs other G20 countries remain high, and the Fed is deliberating the merits of hiking beyond the neutral rate into restrictive territory, which apparently is not priced.

Moving into Friday, the economic calendar still interesting with USD Gross Domestic Product Annualized (QoQ) (3Q A) at 3.5% vs consensus of 3.3%, USD Gross Domestic Product Price Index (3Q A) at 1.7% vs 2.1%. USD Personal Consumption (3Q A) at 4.0% vs 3.3%. Later this morning we will have Pending Home Sales. FOMC Member speeches today come from Clarida and Mester are 12:15 pm and 5:30 pm EST respectively.

The Euro is weaker this morning when valued against the U.S. Dollar falling to a fresh low of 1.1335 following the European Central Bank monetary policy' meeting the risk of a no-deal UK departure from the European Union. European Central Bank President Mario Draghi said on Thursday the longer Brexit talks drag on, the more the private sector will have to prepare for the possibility of Britain crashing out without a deal.

On the data front yesterday, we saw the release Germany business confidence survey which slipped to 102.8 from 103.8 the previous month amid growing concerns about trade disputes and other economic issues. Looking ahead today and the macroeconomic calendar in the EU with all eyes on the US release of the first estimate of Q3 GDP, foreseen at 3.3% vs. the final Q2 4.2% reading.

From a technical perspective, the EUR/USD pair is currently trading at 1.1353. We continue to expect support to hold on moves approaching 1.1331 while now any upward push will likely meet resistance around 1.1400.

The Great British Pound throughout the Asian session on Thursday remained under pressure and stayed below the 1.3000 handle vs. the Greenback on the back of renewed US Dollar buying interest. The safe-haven U.S dollar has attracted nervous investors, due to increased geopolitical tensions including U.S and China, the outcry over the killing of a Saudi journalist in Turkey and the increasing tension between Putin and the United States. Washington has said it wanted to withdraw from a key nuclear weapons control treaty with Russia since it was confident Moscow had violated it.

In the early North American session news broke via Bloomberg that “Brexit talks are said to be on hold as May's team can't agree.” In a knee-jerk reaction the cable was sold off further and touched an eventual low of 1.2810. Britain departs the EU at the end of March, and the uncertainty surrounding Brexit is likely to continue to weigh on the pound

Earlier today, there was no local data releases, therefore, investors will likely look offshore for direction with the upcoming US GDP figures due for release. The numbers are expected to be robust which could put further pressure on the Sterling.

The Australian Dollar is higher overnight after opening the morning at 70.45 US cents. With the focus squared on equities this week, tech shares drove markets higher as the Nasdaq rebounded aggressively in trade yesterday, pulling risk sentiment with it.

The Aussie has fallen away this morning as global equity markets dip on risk-off sentiment. USD/CNY is close to breaking through 7.0 for the first time in 10 years despite assurances from the Peoples Bank of China that it isn’t deliberately devaluing its currency. Chuck into the mix the ping pong being seen between the Italian coalition and the European Commission over its proposed budget and you get a capped Aussie. Next Tuesday night’s CPI data from Australia is the next big domestic event of note that will move the local buck. AUD/USD is down to .70445 and GBP/AUD sits at 1.82.

With a lack of domestic data this week, investors look towards the release of United States Advanced GDP for Q3 which seems to be the highlight of the evening. The Australian dollar opens this morning at 0.7080.

The New Zealand Dollar remains largely range-bound through trade on Thursday, bouncing between intraday lows at 0.6502 and session highs at 0.6545. Despite ongoing equity market volatility and a far from encouraging trade balance print the NZD remains stubbornly resilient. While the trade deficit continues to widen on surging imports and current prices pressures on milk and milk powder (New Zealand’s Primary export) the growth outlook remains solid and investors are far from panic stations.

The NZD remains well bid on moves approaching 0.65 and 0.6450 and appears to have fought off any deeper correction for the time being. That said, much like its antipodean counterpart, there remains little appetite to significantly extend upside moves with drives toward 0.6550 and 0.66 likely to meet selling pressure as investors look to take profits.

While equity driven risk appetite will guide broader demand for the Kiwi, attentions now turn offshore as US GDP and Consumer sentiment data drive directly into the weekly close.

Expected Ranges

  • USD/CAD: 1.3130 - 1.3150 ▲
  • CAD/EUR: 0.6685 - 0.6700 ▼
  • CAD/GBP: 0.5920 - 0.5965 ▼
  • CAD/AUD: 1.0750 - 1.0800 ▼
  • CAD/NZD: 1.1666 - 1.1715 ▼