'For FX traders, it's the silly season'
- Canada GDP beats forecasts... again
- Friday's NFP report is the key focus next week
- USD ignores Michigan consumer sentiment beat
By Michael O'Neill
September is over and what has happened to USDCAD? If you use the range from the August 31 close to 1500 GMT on September 30, the answer is nothing: USDCAD is unchanged.
The dip to 1.2820 and the rally to 1.3278 can be chalked up to noise. The Opec pseudo-deal (it has not been studied or ratified) cancelled out a dovish-leaning central bank. The US dollar lost ground against the rest of the majors except for sterling where GBPUSD is in its own post-Brexit world.
Autumn is barely a week old. The leaves haven’t even started to change colours, yet for FX traders it’s the silly season.
In addition to the usual US Thanksgiving, Christmas and New Year’s holidays, the US election may be fairly disruptive. A Donald Trump presidency would create huge market volatility as he has vowed to renegotiate or rip up the North American Free Trade Agreement (and other deals), wants to dump Federal Reserve chair Janet Yellen, and says he will declare China a currency manipulator.
Canada GDP soothes rate cut fears
The Canadian dollar was beaten with the ugly stick following disappointing inflation data and comments from the Bank of Canada governor expressing concern about the low level of inflation.
The risk that the BoC actually cuts rates is pretty low and although today’s data should confirm that view. Nevertheless, governor Stephen Poloz remains concerned about the persistently low level of inflation and may want to keep USDCAD above 1.3000.
The week ahead
In horse racing parlance, we are in the home stretch. This week ushers in Q4 and just as a reminder, there are only 83 days until Christmas. The week will start with holidays in Australia, Germany, and a two-day break in China. The Reserve Bank of Australia has its first meeting under governor Philip Lowe; no policy change is expected.
US data releases will come under extra scrutiny as investors seek to determine the prospects for a December rate hike. As usual, the nonfarm payrolls report on Friday will be key.
The week that was
This was the week that a lot of hot air was expected to fill the sails of the good ship S.S. Market... in the end, it did and it didn’t. The 14 Fed speakers (including Yellen), the European Central Bank’s Mario Draghi and the Bank of Japan’s Haruhiko Kuroda didn’t offer anything new...
Monday showed a tentative start to the week. Markets were cautiously awaiting the presidential debate in New York. A rise in New Zealand’s trade deficit led to some NZDUSD selling. USDJPY was heavy ahead of a speech by BoJ Governor Kuroda which led to additional selling in Europe despite his remarks hinting at deeper negative rates.
On Tuesday, Asia’s early session was dominated by headlines from the Clinton/Trump debate. FX markets were choppy. By the time Europe walked in, financial markets had concluded that Clinton was the winner and traders could go back to fretting about what really mattered, like Deutsche Bank's share price weakness and capital concerns.
Wednesday saw USDJPY, AUDUSD, and NZDUSD rise, supported by an improved tone in risk sentiment. That tone didn’t survive the European open. EURUSD was wobbly due to German banking concerns but Draghi reiterated a need for structural reforms to boost Eurozone growth, which provided some support for EURUSD.
Thursday, the Opec announcement dominated the Asia session and oil prices rose. AUDUSD and NZDUSD climbed in early trading but retreated during the European session. USDJPY rallied which may have had more to do with half-year end positioning than anything else.
— Edited by Michael McKenna