Forex Today: BoC rate decision, PMI data to grab market attention
Here is what you need to know on Wednesday, July 24:
Following the choppy action seen on Monday and Tuesday, the market volatility could heighten on key macroeconomic events midweek. S&P Global will release preliminary July Manufacturing and Services PMI data for Germany, the Eurozone, the UK and the US on Wednesday. During the American trading hours, the Bank of Canada (BoC) will announce monetary policy decisions. The US economic calendar will also feature Goods Trade Balance and Wholesale Inventories for June.
US Dollar PRICE This week
The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.35% | 0.23% | -1.82% | 0.57% | 1.34% | 1.46% | 0.37% | |
| EUR | -0.35% | -0.14% | -2.20% | 0.16% | 1.03% | 1.04% | -0.07% | |
| GBP | -0.23% | 0.14% | -2.15% | 0.29% | 1.16% | 1.16% | 0.05% | |
| JPY | 1.82% | 2.20% | 2.15% | 2.45% | 3.29% | 3.29% | 2.13% | |
| CAD | -0.57% | -0.16% | -0.29% | -2.45% | 0.87% | 0.89% | -0.22% | |
| AUD | -1.34% | -1.03% | -1.16% | -3.29% | -0.87% | 0.01% | -1.11% | |
| NZD | -1.46% | -1.04% | -1.16% | -3.29% | -0.89% | -0.01% | -1.07% | |
| CHF | -0.37% | 0.07% | -0.05% | -2.13% | 0.22% | 1.11% | 1.07% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The US Dollar (USD) benefited from the negative shift seen in risk sentiment and gathered strength against its major rivals on Tuesday, with the USD Index registering its highest daily close in nearly two weeks at around 104.50. Early Wednesday, the USD Index stays in a consolidation phase, while US stock index futures lose between 0.4% and 0.9%. In the meantime, the benchmark 10-year US Treasury bond yield holds comfortably above 4.2% after closing virtually unchanged on Tuesday.
The BoC is widely expected to cut the policy rate by 25 basis points to 4.5%. Following the announcement of the rate decision at 13:45 GMT, BoC Governor Tiff Macklem will speak on the policy outlook at a press conference and respond to questions from the press. USD/CAD registered gains for the fifth consecutive trading day on Tuesday and continued to stretch higher early Wednesday. At the time of press, the pair was trading at its highest level since mid-April near 1.3800.
After failing to reclaim 1.0900, EUR/USD came under bearish pressure on Tuesday and closed the day deep in negative territory. The pair stays on the back foot in the European morning on Wednesday and trades below 1.0850.
Although GBP/USD managed to erase a portion of its losses after dipping below 1.2900 on Tuesday, it failed to gather recovery momentum. The pair remains under modest bearish pressure below 1.2900 at the beginning of the European session.
During the Asian trading hours, the data from Australia showed that the Judo Bank Composite PMI edged lower to 50.2 in July's flash estimate from 50.7 in June. AUD/USD extended its downtrend early Wednesday and dropped below 0.6600 for the first time in over a month.
USD/JPY continued to push lower despite the renewed USD strength on Tuesday and lost nearly 1% on the day. The bearish pressure surrounding the pair remains intact early Wednesday. At the time of press, USD/JPY was trading at its lowest level since mid-May near 154.50, falling more than 0.5%.
After suffering heavy losses on Monday, Gold regained its traction and closed above $2,400 on Tuesday. XAU/USD holds its ground early Wednesday and edges higher toward $2,420.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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