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  • The focus in the FX space overnight was the CAD and US dollar in a risk-off environment.  

The US dollar was unable to add to the prior session’s gains to 97.01 and was capped at 96.99 as investors were unable to capitalise on job’s data momentum due to a record trade deficit for 2018 which widened to -$59.8bn. The US trade gap blew out to $-621bn in 2018, by 12.5%, which was a ten-year high.  Exports dropped 1.9% for a third consecutive month while domestic demand took imports up by 2.1%. The ADP report came with a good-sized upward revision, the headline came in a touch below expectations at 183k vs the mkt consensus of 190k. The January print was revised up 87k to 300k the overall read was solid – “Quite solid given the average monthly gain in this cycle (since July 2009) has been 174k,” analysts at ANZ Bank argued. The DXY ranged from 96.78 to 96.99. The US 10yr treasury yield dropped from 2.72% to 2.68% while the 2yr yield fell from 2.55% to 2.51%.  

The Bank of Canada (BoC) update

The Bank of Canada (BoC) left the policy rate on hold at 1.75%. The Canadian dollar dropped to 1.3457 vs the greenback following the BoC which downgraded their global and domestic growth outlooks, dropping a pledge to lift rates to neutral, saying that “the outlook warrants policy interest rate that is below its neutral range.”

Analysts at Rabobank explained that in the aftermath of today’s meeting we maintain the view that the next move from the  BoC  will be rate cuts in 2020 Q2; Their currency analysis as follows:  

  • We expect USD/CAD to primarily trade in a 1.32-1.34 range but the recent formation of an inverse head and shoulders points to a potential move as high as 1.36.
  • That is not our base case but the path of least resistance certainly points to a weaker CAD. That said, we expect rising oil prices and a seasonal bid from algos will put some pressure on USD/CAD in April.

Currency action:

Analysts at Westpac summarised the rest of key price action in the majors:

  • EUR/USD ranged sideways between 1.1285 and 1.1325, dipping only briefly on a news report predicting looser policy by the ECB. GBP was slightly softer.  
  • The defensive yen outperformed, USD/JPY falling from 111.90 to 111.62 but steadying only a touch lower over the day.  
  • The worst performer on the day was the AUD, which extended its reaction to disappointing GDP data to 0.7021 in NY trade, a fresh two-month low but for now dodging 0.7000.  
  • NZD/USD consolidated between 0.6760 and 0.6790.  
  • AUD/NZD fell from 1.0420 to 1.0359 – the lowest since Jan 2017.

Key events from US session:  

  • BoC’s statement was dovish reflecting realized and expected downgrades to economic outlook – TDS
  • US stocks close in the red exposing a critical level in the Dow Jones at the 78.6% Fibo support

Key events ahead:  

  • When are the Australian retail sales/ trade data and how could they affect AUD/USD?