March 17, 2020
USDCAD open (6:00 am EST) 1.3891-95 Overnight Range 1.3736-1.3909
- Fed jumps the gun-slashes Fed Funds by 100 basis points to 0.00%-0.25% on Sunday
- Reserve Bank of New Zealand slashes rates by 75 basis points to 0.25%
- Bank of England statement Mar.15: “ Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.”
- Bank of Japan doubles amount of exchange-traded stock to around $112 billion.
- G-7 conference call this mornings to discuss COVID-19 response. Rumours of a wild-scale lockdowns to be announced.
- Bank of Canada chopped rates Friday, cutting 50 basis point to 0.75%
Chart: Currency gain/loss (%) against the US dollar from NY close March 6 to March 13 NY open (6:00 EST)
Source: Saxo Bank/IFXA
FX Recap and outlook: The Fed fired its big guns in a rare Washington Sunday night action. They announced a massive 100 basis point cut to the range for Fed Funds slashing it from 1.0-1.25% to 0.000-0.25%. They also announced new mortgage-backed securities and Treasury purchases to the tune of $700 billion. The Fed justified its move saying “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States. Global financial conditions have also been significantly affected.”
Traders were shocked-and awed. And Equity traders were not impressed. The Nikkei 225 closed with a loss of 2.46%. European bourses are really suffering. The UK FTSE 100 is down 6.82% while the German Dax lost 7.84%. It will be an ugly open for Wall Street as Dow futures are already down over 1,000 points.
Oil prices are consolidating near their overnight lows. WTI oil dropped over 5.0% with no end in sight in the Russia/Saudi Arabia price war.
FX markets were volatile. The following chart depicts the price action of USDJPY (blue) EURUSD (pink) and USDCAD (dark blue)
Source: Saxo Bank
FX Recap and outlook: EURUSD gapped lower at the New Zealand open touching 1.1020 immediately after the Feds rate cut announcement, before spiking to 1.1236 in Europe.. The rally may be misguided. Coronavirus deaths in Spain nearly doubled between Saturday and Sunday. The death toll rose to 127 in France. The US banned travel from the UK and Ireland, in addition to most of Europe.
The FOMC statement said that the US entered the coronavirus period on a strong footing. The same cannot be said about the Eurozone. There are reportedly 100 million people in lock-down in Europe. The European Central Bank reaction to the COVID-19 crisis underwhelmed traders, which may limit EURUSD gains.
GBPUSD tracked EURUSD at the NZ open and rallied from 1.2257 to 1.2425 before reversing the move in Europe. The Bank of England said about Sunday’s announcement of coordinated central bank action: “today’s coordinated action by major central banks will improve global liquidity by lowering the price and extending the maximum term of U.S. dollar lending operations. These new operations will help ease strains in global funding markets, thereby supporting the supply of credit to households and businesses.”
GBPUSD continues to suffer from uncertainty around the UK/Eurozone trade discussions and increasing coronavirus cases in Britain.
The US travel ban is another blow to the economy, which suggests GBPUSD gains will be limited. The upcoming employment report will not be a factor for traders.
USDJPY gapped lower at the NZ open and never recovered. The Fed’s aggressive rate action smells of desperation and suggests the policymakers may be very worried about a pending recession. S&P 500 futures triggered another “circuit-breaker” in early Asia trading, after plunging over 5.0%. A rush into risk-aversion trades fueled the early USDJPY selling. The Bank of Japan announced new stimulus measures which failed to stem safe-haven demand for yen.
The Reserve Bank of New Zealand surprised markets saying “The Official Cash Rate (OCR) is 0.25 percent, reduced from 1.0 percent, and will remain at this level for at least the next 12 months.” NZDUSD bounced in a 0.5945-0.6148 range and is trading at 0.6042 in New York. AUDUSD mirrored NZDUSD moves.
The Bank of Canada, in another surprise move, cut the overnight rate by 0.50 basis points to 0.75%, on Friday. They justified their actions saying: “This unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices.” USDCAD jumped to 1.3990 from 1.3903 immediately after the announcement and then dropped rapidly, to close at 1.3808. USDCAD traded with a mildly bid tone overnight and opened near the top of the range.
The coordinated central bank rate cuts and reports of coordinated lock-downs in high population areas of G-7 nations, have helped to cap USDCAD strength, as “everyone is in the same boat.”
Economic data is being ignored while Wall Street price movements keep traders on edge.
USDCAD Technical Outlook
The USDCAD technicals are bullish while trading above 1.3730 looking for a break above 1.3990 to extend gains to targeting 1.4050. A break below 1.3730 would shift the focus to 1.3660. For today, USDCAD support is at 1.3850 and 1.3790. Resistance is at 1.3950 and 1.4015. Today’s range 1.3850-1.3950
Chart: USDCAD weekly
Source: Saxo Bank