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Canadian Dollar to Outperform as BoC Dismisses Negative Rates

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USD/CAD, CAD/JPY, Bank of Canada, Negative Interest Rates – Talking Points:

  • The haven-associated USD and JPY drifted lower during the Asian trading session on the back of fiscal stimulus hopes.
  • The Canadian Dollar looks poised to outperform its major counterparts as the BoC talks down negative rates.
  • USD/CAD eyeing a push to fresh monthly-lows after plunging through key support.
  • CAD/JPY poised to extend its rebound higher as price carves out a bullish Ascending Triangle pattern.

Asia-Pacific Recap

A broad risk-on tilt was seen throughout Asia-Pacific trade, as bipartisan talks between House Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin buoyed fiscal aid hopes.

The haven-associated US Dollar and Japanese Yen continued to lose ground against their major counterparts while the risk-sensitive Australian Dollar pushed back towards its monthly high.

Gold stormed back above the $1,910/oz mark and silver surged over 1.8% as US 10-year Treasury yields slipped lower.

Looking ahead, Canadian employment figures for the month of September headline a rather light economic docket.

Canadian Dollar to Outperform as BoC Dismisses Negative Rates

DailyFX Economic Calendar

BoC Puts Negative Rates Back on the Table

The Canadian Dollar could continue to outperform its major counterparts in the near-term, despite Bank of Canada Governor Tiff Macklem’s suggestions that a negative interest rate policy remains a viable option for the central bank.

Macklem stated that “we are not actively discussing negative interest rates at this point but it’s in our toolkit and never say never”, perhaps attempting to gain some flexibility and assure markets that further easing could be on the table if the nation’s economic recovery markedly slows.

However, the Governor also voiced that “as much as a bold policy response was needed, it will inevitably make the economy and financial system more vulnerable to economic shocks down the road”, adding that “the bottom line is that the private and public sectors together need to be acutely aware of financial system risks and vulnerabilities as the economy recovers”.

Canadian Dollar to Outperform as BoC Dismisses Negative Rates

Source – Apple Mobility Data

This could indicate that Canadian policymakers are becoming more sensitive to the potential impact of alternative monetary policy measures and may hesitate to ease further in the absence of a notable deterioration in economic data.

That being said, disappointing employment figures for the month of September may pressure the BoC to rethink its current wait-and-see approach to monetary policy, given high-frequency data reflects a notable slowdown in all three mobility metrics – walking, driving and transit – and a ‘second wave’ of Covid-19 infections is threatening to upend the nation’s economic recovery.

Canada’s chief public health officer Theresa Tam stressed that the substantial increase “in the number of hospitalized cases [is] raising concerns of straining health system capacity if the upward trend continues”, as the nation recorded its highest number of new coronavirus infections since the pandemic began, on October 8.

Nevertheless, the Canadian Dollar looks poised to gain ground against the haven-associated Japanese Yen and US Dollar in the interim, if upcoming economic data encourages the Bank of Canada to keep its monetary policy levers steady.

Canadian Dollar to Outperform as BoC Dismisses Negative Rates

Source – Worldometer

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CAD/JPY Daily Chart – Ascending Triangle in Play?

CAD/JPY rates look poised to extend their rebound from key support at the 78.6% Fibonacci (78.47), as price surges back above the July high (80.14) and continues to carve out a bullish Ascending Triangle continuation pattern.

The development of the RSI however, is indicative of fading bullish momentum as the oscillator continues to respect the downtrend extending from the June extremes and fails to clamber back above 60.

This could suggest that price may slide back towards the sentiment-defining 200-day moving average (79.72) before resuming its push higher, if support at the July high (80.14) gives way.

However, a push to test the August high (81.58) could be in the offing if price remains constructively perched above the psychologically pivotal 80.00 mark, with a daily close above the June high (81.91) needed to validate the topside break of the Ascending Triangle and potentially ignite a surge to test the pre-crisis high (84.75).

Canadian Dollar to Outperform as BoC Dismisses Negative Rates

CAD/JPY daily chart created using TradingView

USD/CAD Daily Chart – Eyeing Push to Post-Crisis Low

The outlook for USD/CAD rates remains skewed to the downside, as price continues to track within the confines of a Descending Channel and below all four moving averages.

Moreover, a bearish crossover on the MACD indicator and the RSI’s plunge back below its neutral midpoint hints at building selling pressure, which may ultimately intensify the retreat from the September high (1.3421) if USD/CAD is unable to clamber back above the 1.3200 level.

A push to test the September 10 swing-low (1.3119) seems likely in the coming days, with a break below psychological support at 1.3100 probably bringing the post-crisis low (1.2994) into focus.

On the other hand, a rebound towards confluent resistance at the June low (1.3316) could be on the cards if sellers fail to overcome support at the 1.3100 mark.

Canadian Dollar to Outperform as BoC Dismisses Negative Rates

USD/CAD daily chart created using TradingView



of clients are net long.



of clients are net short.

Change in Longs Shorts OI
Daily 2% -19% -4%
Weekly 18% -25% 2%

— Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss





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Hong Kong Connect Opens China’s ETF Market to Global Investors By Bloomberg

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© Reuters. Hong Kong Connect Opens China’s ETF Market to Global Investors

(Bloomberg) — China’s fast-growing $157 billion market for exchange-traded funds will be directly accessible to overseas investors from Friday, at least four years since the plan was first hatched.

Four so-called “feeder” ETFs will begin trading in Shenzhen and Hong Kong, the first batch in a project aimed at connecting the two markets. The Shenzhen funds will track the China Enterprises Index and the S&P New China Sectors Index, while the Hong Kong-listed ETFs will follow the benchmark CSI 300 Index and a gauge of China’s 5G companies.

The investment vehicles, popular with retail traders around the world because they’re among the cheapest way to trade an index, will collect capital locally and settle trades across the border. Some 900 million yuan ($135 million) of funds has been gathered in a pre-sale of the ICBC CSOP S&P New China Sectors ETF, said Melody He, managing director at provider CSOP Asset Management Ltd.

Regulators in Hong Kong have been mulling broadening trading links with mainland China to include ETFs since at least 2016. The plan was delayed partly due to complex clearing and settlement issues. At $40 billion, Hong Kong’s ETF market is smaller than the mainland’s even though its first fund was launched five years before China’s in 1999. ETFs in China nearly doubled in value in the first half of this year.

“This is the very start of ETF connectivity,” said Bloomberg Intelligence analyst Sharnie Wong.

While there are ETFs in Hong Kong, London or New York following China’s onshore equity market, the tracking error can be as high as 15%, partly due to limits on foreign ownership. The feeder ETFs can better replicate mainland benchmarks because their providers are local and won’t be subject to caps. Overseas investors are currently permitted to own no more than 30% in yuan-denominated shares.

Unlike other major stock markets in the U.S. or Japan, China — the world’s second largest — isn’t overrun by ETFs. Individual investors haven’t caught on to the products even though costs can be a lot lower than with mutual funds, partly due to little demand for individual stock research.

China ETFs Give Retail Investors Access to Soaring Tech, Ant

ETFs can be traded in real time and in the U.S. are growing increasingly complex and diverse since the first one came about in 1993. China’s first ETF was launched by China Asset Management Co. in 2004. They only started to gain traction in China after MSCI Inc. added yuan-denominated shares to its benchmarks in 2018.

Cross-border trading of ETFs between Hong Kong and mainland China will take time to grow, said Wong, adding that the experience of the stock connect scheme launched in 2014 between both sides could be instructive.

“It could take six years for northbound trading to contribute 5% to mainland China’s ETF turnover, assuming participation of international investors in ETFs is similar to that of A-shares,” she said.

“It may take only two years for southbound trading to contribute 5% to Hong Kong’s ETF turnover, if mainland investors appetite for Hong Kong listed ETFs is similar to that of stocks.”

©2020 Bloomberg L.P.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Europe’s Economy Risks New Contraction From Virus Curbs By Bloomberg

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© Reuters Europe’s Economy Risks New Contraction From Virus Curbs

(Bloomberg) — The resurgence of the coronavirus has knocked Europe’s economic recovery back a step and raised the possibility of another contraction.

IHS Markit’s monthly measure of business activity fell to a four-month low of 49.4 in October from 50.4 in September. Within the report is a clear, divergent trend of manufacturing strength being offset by damage to services from the second wave of the pandemic.

New government curbs as well as consumer fears of the virus are driving the two-speed economy. In Paris and eight other major French cities, authorities introduced a curfew this month that’s hitting restaurants and bars particularly hard. In Germany, a Bavarian district imposed a two-week lockdown after infections climbed above a rate that triggers an automatic tightening of restrictions.

While the weakness is largely limited to services, the fallout on jobs and spillovers to the rest of the economy will worry policy makers. The deteriorating outlook strengthens the case for the European Central Bank to pump more monetary stimulus into the economy, and governments may have to extend expensive aid programs.

IHS Markit warned that the euro-area economy could shrink again this quarter. Its report said employment fell again in October, confidence deteriorated and orders declined.

“While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of Covid-19 containment measures,” said Chris Williamson, chief business economist at IHS Markit.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Dollar Edges Higher After Presidential Debate By Investing.com

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© Reuters.

By Peter Nurse

Investing.com – The dollar posted small gains in early European trade Friday, following the final presidential debate between U.S. President Donald Trump and Joe Biden before the Nov. 3 election.

At 2:55 AM ET (0655 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was up 0.1% at 93.082, bouncing back from the seven-week low seen earlier in the week. However, it remains 0.6% lower for the week.

Elsewhere, was down 0.2% at 1.1793, fell 0.2% to 1.3054, while was down 0.1% at 104.72.

The final debate between the two presidential candidates took place in Nashville, Tennessee late Thursday and was more restrained than the chaotic first debate, with the debate centering more on policy rather than personal attacks.

That said, “people are just closing out longs ahead of the election just in case Biden isn’t [elected] … we’re coming into that eye of the storm now where it takes a bit of a brave soul to put on new positions ahead of the election,” Pepperstone head of research Chris Weston told Reuters.

Traders are also keeping an eye on negotiations between House of Representatives Speaker Nancy Pelosi and Treasury Secretary Steven Mnuchin over the potential for a new substantive coronavirus relief bill, with Pelosi expressing optimism that a consensus could be reached.

“Market players will take their cue from U.S. political developments as well as the sustained acceleration in Covid-19 cases around the globe as the fall ushers in a new wave of infections as predicted by experts,” said analysts at ING, in a research note.

Elsewhere, was largely flat at 6.6843, with the yuan holding onto gains against the greenback as Wang Chunying, spokeswoman for China’s State Administration of Foreign Exchange, told a news conference that the yuan has been more stable than expected. This comes despite the Chinese currency reaching its highest level against the dollar in 27 months on Wednesday.

The Chinese currency could see sharp gains if Joe Biden wins November’s U.S. presidential election, according to Citigroup (NYSE:) strategists. Chinese exporters would expect a more predictable U.S.-China trade relationship in that circumstance, and will start selling their dollar cash piles to buy yuan, the strategists wrote in a note dated Thursday.

Additionally, rose 0.2% to 7.9478, the day after Turkey’s central bank raised the upper bound of its interest-rate corridor but unexpectedly left its benchmark rate on hold.

The central bank surprised investors last month with a 200-basis-point increase and has since tightened policy further by restricting funding at the benchmark rate, forcing banks to borrow using costlier options. 

But this hasn’t stopped the currency’s decline, with the lira falling another 2% against the dollar since the September rate decision.

“Exchange rate developments are likely to remain as one of the key determinants of CBT policy in the period ahead given ongoing geopolitical issues and US elections-related sensitivities,” ING added.

 

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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