March 3, 2020

USDCAD open (6:00 am EST) 1.3354-58     Overnight Range 1.3321-1.3370

The G-7 response to the coronavirus outbreak was tepid.  Global markets took scant comfort from the G-7 Finance Ministers and Central Bank Governors communique that basically said “we are watching it.” 

The statement said “Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks.  Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase.  G7 central banks will continue to fulfill their mandates, thus supporting price stability and economic growth while maintaining the resilience of the financial system.”

The US dollar opened in New York with small losses against the major G-10 currencies except CAD and EUR and then eked out small gains, post G-7 statement.

 Chart: Currency gain/loss (%) against the US dollar from  NY close to NY open (6:00 EST)

Source: Saxo Bank/IFXA

FX Recap and outlook:  The G-7 may prefer to sit and watch coronavirus developments but the Reserve Bank of Australia acted.  They cut the Overnight Cash Rate (OCR) by 25 basis points, to 0.50% from 0.75%, blaming the COVID-19 outbreak for the decision.  The move was expected, and AUDUSD and the Australia Stock index rallied.President Trump is on the interest rate cut bandwagon. He applauded the RBA rate cut, tweeting

President Trump is on the interest rate cut bandwagon. He applauded the RBA rate cut, tweeting “Australia’s Central Bank cut interest rates and stated it will most likely further ease in order to make up for China’s Coronavirus situation and slowdown. They reduced to 0.5%, a record low. Other countries are doing the same thing, if not more so. Our Federal Reserve has us…. ….paying higher rates than many others, when we should be paying less. Tough on our exporters and puts the USA at a competitive disadvantage. Must be the other way around. Should ease and cut rate big. Jerome Powell led Federal Reserve has called it wrong from day one. Sad!

Trump may soon get his wish. . The CME Fedwatch tool suggests a 100% chance for the Fed to cut rates on March 18.

EURUSD consolidated Monday afternoon’s losses in a 1.1120-40 range in Asia and then continued to slide into the New York open.  A Fed rate cut would accelerate the US economic outperformance compared to the Eurozone. The ECB is hampered by the perception that existing negative interest rates limit the ECB’s ability to respond. Also, spreading coronavirus infections, a looming refugee crisis, and the EU/UK trade talks also weighed on the single currency. Eurozone data was largely ignored.  CPI, and the Unemployment Rate were at or near forecasts while PPI was a tick below expectations. The intraday EURUSD technicals suggest that failure to extend gains above 1.1160, combined with the steepness of the rally from 1.0790, risks a drop to 1.0950.

GBPUSD remains in the downtrend from February 25, pressured by the elevated risk that the UK and EU are unable to strike a trade deal before the expiry of the transition period. However, prices have climbed from their overnight low of 1.2744, supported by a rally in UK stocks and comments from soon-to-be-ex Governor of the Bank of England Mark Carney.  He told MP’s that the BoE would take all the necessary steps to defend against a coronavirus downturn and that the BoE has plenty of monetary policy ammunition.

USDJPY traded in a 107.67-108.53 band overnight. Ultra-low US Treasury yields offset gains from broad US dollar weakness.   The 10-year Treasury yield touched 1.042% in Asia but managed to climb to 1.158% in New York today. 

WTI oil prices soared on hopes for coordinated central Bank monetary policy stimulus, and additional Opec production cuts.  WTI climbed from $43.40/barrel yesterday to $48.64/b overnight.

USDCAD underperformed against AUDUSD and NZDUSD.  The RBA interest rate cut suggested to many the BoC will follow suit tomorrow and cut domestic rates.  The rebound in oil prices did not give USDCAD much support.

USDCAD Technical Outlook

The USDCAD technicals are bullish.  The “trend is your friend” and the uptrend from the beginning of January is intact while prices are above 1.3260. However, the intraday technicals are murky as prices consolidate in a 1.3310-1.3390 range.  For today, USDCAD support is at 1.3310 and 1.3260.  Resistance is at 1.3390 and 1.3420. Today’s range 1.3320-1.3390

Chart: USDCAD daily

Source: Saxo Bank