CAD Shrugs off Deficit and Whips USD

07/10/2020 9:50 am EST

Focus: FOREX

Adam Button

Co-Owner and Managing Director,

The Canadian dollar surged against the U.S. dollar despite a surge in the Canadian deficit, reports Adam Button.

Another day, another slide for the U.S. dollar as risk appetite remains neutral to positive and the Federal Reserve manages to put out any fires from heightened USD funding. 

The U.S. Dollar Index sustained four straight monthly declines, the last three of which are the worst triple since autumn 2017.   Wednesday's Canada deficit numbers were a reminder that this market isn't concerned with runaway fiscal spending. The British pound (GBP) is the day's top performer, while the U.S. dollar lagged as it continues to struggle. 

Leaks suggesting a $300 billion fiscal deficit in Canada late Wednesday were born out as finance minister Bill Morneau reported a shortfall estimate of $342 billion, smashing records. The numbers were wholly unexpected but the way the loonie shrugged off the deficit was a surprise. Morneau also offered no commentary on when a return to something resembling a balanced budget would come.

USD/CAD fell a full cent on the day to hit a two-week low. It also briefly broke the 200-day moving average near 1.3500.

The fresh nine-year high in gold at $1,808 also underscored the market's attitude towards deficits. There is no end in sight to government spending anywhere. In the UK Wednesday, Chancellor Sunak rolled out another round of targeted stimulus.

The broad market shrugged off a record number of virus cases in the United States as well. Technology remains in a roaring bull market and Chinese shares – particularly Chinese tech – are doing the same. If the positive sentiment can last through Friday then the case for more easy-money trades will be strengthened.

Weekly initial jobless claims dropped this week but there are a record 32.9 million Americans on unemployment benefits. The consensus is for another 1.375 million applications for unemployment benefits. The numbers remain staggeringly high but the market has shrugged off unemployment concerns since the high of the pandemic.

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