News & analysis

CAD

The loonie, like the rest of the G10, took a chunk out of the greenback in yesterday’s session. USDCAD fell 0.5% as oil markets swung between losses and gains for the day, with WTI ultimately ending the day marginally higher due to a weaker US dollar. Even though the Canadian dollar isn’t driven by the Bloomberg Nanos Confidence indicator, which is a weekly phone survey conducted by Bloomberg to gauge consumer confidence, last week’s reading showed the consumers are more optimistic of their financial health and economic expectations than previously. The two sub-indices have now recovered more than half of their losses since flailing to record lows in May. The headline index also rose to its highest reading since the Federal lockdown in April with a print of 48.4241, just shy of the breakeven 50 level. The loonie trades marginally weaker this morning along with the rest of the G10 currency board, with little scheduled for release. USDCAD is likely to remain supported above its June low in what is a muted data day ahead of tomorrow’s FOMC meeting.

USD

The US dollar said enough is enough this morning after its recent rout was extended in yesterday’s session. The dollar DXY index hit its lowest level since June 2018, with the Bloomberg dollar index, which measures the US dollar’s performance against a broader basket of currencies,  also falling to levels not seen since 2018. With infection rates rising, especially in Florida where the positive test count rose from 11.1% to 11.4% yesterday, investors continued to find safety in gold. The precious metal, along with silver, rose to astonishing heights, with gold reaching a fresh all-time high of $1,981 per ounce. The rising positive test count suggests the drop in new cases to 8,892  in Florida was due to a scaling back of testing and not an actual flattening of the underlying curve. This morning, however, the dollar has called enough on its recent rout and is trading higher against the whole G10 currency board. While the Covid case count and the progression of the stimulus bill remain in scope for markets today when pricing the dollar, a stabilisation in the recent routing is likely to hold ahead of tomorrow’s Fed meeting. On the fiscal front, the Senate republican’s $1trn would trim emergency jobless benefits, send $1,200 payments to most Americans and shield businesses, schools and other organisations from coronavirus-related lawsuits. With the GOP beginning talks with the Democrats, who favour a more substantial $3trn+ bill, the progression of discussions and the final stimulus package is unlikely to find a swift resolution. House leader and Democrat Nancy Pelosi described the plan as “pathetic”, which just evidences the rift needed to be bridged for further fiscal support.

EUR

The euro skyrocketed to levels around its 2-year high against the US dollar  yesterday as investors continued to find comfort in gold’s safe haven appeal. Some of this price action has since been undone overnight as the US dollar has managed to stem its losses. The IFO business climate index came in at 90.5 in July from an upwardly revised 86.3 in June, marking a third consecutive rise in business sentiment, beating forecasts and sending optimistic signs for the recovery of the eurozone’s largest economy. This morning, the pair bounced back from its highs and took a breather, but this may be short-lived depending on how dovish the Federal Reserve will be tomorrow. The European Central Bank extended a request that banks hold off on returning capital to shareholders and will review its stance on dividends and buyback shares in Q4, according to a statement on Tuesday. This does not come as a big surprise as Bloomberg reported last week that the ECB was leaning towards such a plan. “Once the uncertainty requiring this temporary and exceptional recommendation subsides, banks with sustainable capital positions may consider resuming dividend payments”, the ECB said in its statement. As today is a light day on the eurozone data front, markets will turn their attention to external euro drivers while awaiting the big data release of the week – Friday’s eurozone GDP prints.

GBP

Sterling is one of the better performing currencies against the US dollar this morning, after the greenback managed to stem its losses and mount a small rally overnight. A number of news stories are of tangential relevance to sterling this morning, including reported extensions to the Help to Buy property support scheme. Data from the housing market has been mixed in recent months, and the measure may be an attempt to prevent a collapse in demand and therefore prices for residential property – which is likely to prove difficult given the substantial rise in unemployment that will occur over the coming months. Boris Johnson told businesses to prepare for a second wave of coronavirus infections in the autumn, speaking on a conference call. Today at 11:00 BST the CBI will release its measure of realised sales. The diffusion index reflecting the overall change in sales is expected to increase slightly, while remaining in overall contraction on a year on year basis.

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