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Canadian dollar update – Friday August 7, 2020. Greenback grinds out gains...NFP ahead.

FX & market recap:

US dollar sellers took a time-out, and dollar buyers took control. It didn’t start that way. Asia FX was steady until Trump checked his polling data and saw “Sleepy Joe” Biden, wide-awake and leading by 9-12% as per YouGov polls, and Ipsos polls. He issued executive orders against two Chinese apps, Tik Tok and WeChat, which the Wall Street Journal says gives a 45-day deadline for an American company to buy them.

On January 29, 2020, President Trump said about the new US, Canada, Mexico trade agreement: “The USMCA is the largest, fairest, most balanced, and modern trade agreement ever achieved. There’s never been anything like it.” A little more than six months later, on August 6, Trump said “Earlier today I signed a proclamation that defends American industry by re-imposing aluminum tariffs on Canada. Canada was taking advantage of us, as usual. The aluminum business was being decimated by Canada, very unfair to our jobs and our great aluminum workers.” Prime Minister Trudeau said, “Canada would respond with dollar-for-dollar retaliatory tariffs.”

Canadian dollar highlights:

USD/CAD dropped to 1.3235 yesterday, just above support in the 1.3230 area. It held and prices bounced to 1.3288 overnight. USD/CAD is punching above its weight. The currency pair is free-loading on the broad-US dollar sell-off. Yesterday’s ADP report was weak, and though a poor barometer of NFP, still raises concerns that Friday’s NFP report may be weaker than expected.

A weak US economy is not helpful for the Canadian outlook, either. The US dollar is suffering from the belief that the European economy will outperform the US economy because of the rise in COVID-19 cases in America. However, the new case numbers are declining. Canada has its version of a political crisis with calls for the Finance Minister to resign. The Alberta oil patch got hit with another blow last week when Total Petroleum, wrote down $9.5 billion in oilsands assets. If they don’t see hope in Canada’s energy industry, who else will bail?

Euro highlights:

EUR/USD rallied, albeit choppily, in a 1.1839-1.1915 band. It peaked after the German Factory Orders data was released, then profit taking drove prices to the overnight low, which is where they are in early NY trading. EUR/USD has risen on the back of negative US dollar sentiment stemming from US political dysfunction, the resurgence of coronavirus cases in many US states and the perception that the European economy will outperform the US economy in the second half of the year. However, the magnitude of recent gains and the risk of a correction with nonfarm payrolls looming is making traders cautious.

British pound highlights:

GBP/USD was the best performing currency overnight. GBP/USD popped to 1.3284 after the Bank of England announcement, and that is where it sits in early NY trading. Prices were supported when the BoE said that April-June COVID-19 slump was “less severe” than expected. They lowered their 2020 forecast for unemployment from 10.0% to 7.5% and upgraded their 2020 growth forecast to -9.5% from -14%. Officials are still discussing the use of negative rates, but Governor Baily said he “did not think we are about to use negative rates, that is not the current plan.”

Asia Pacific highlights:

USD/JPY traded sideways in a 105.40-68 band. Wednesday’ weak ADP data and soft US Treasury yields weighed on prices. AUD/USD and NZD/USD moves mirror US dollar sentiment. Both currency pairs are lower on the back of profit-taking ahead of Friday’s NFP data, following this week’s strong gains.

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