March 31, 2020
USDCAD open (6:00 am EST) 1.4224-28 Overnight Range 1.4158-1.4266
- Better-than -expected China PMI data shows Chinese economy strengthening
- Trump/Putin call lifts oil prices off their lows
- Canada January GDP rises 0.1%, as expected; Industrial Product Prices fall 0.5%
- US dollar trades higher on month-end demand
- Canadian dollar is the worst-performing major G-10 currency between Feb.28 close and today’s open, losing 6.20%. Swiss franc only currency to finish with a gain and it was only up 0.12%.
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: March came in with a cough and would be going out on a respirator if they were available. US equity markets are bleeding like its 2008, West Texas Intermediate (WTI) dropped 53% since its close, February 28, and the US dollar is the safe-haven currency of choice. The COVID-19 pandemic unleashed a flood of cash after the G-10 finance ministers agreed to coordinated stimulus plans. Central bankers slashed their benchmark interest rates and which are at, or close to 0% in Canada, US, Australia, and the UK.
Wall Street closed with healthy gains yesterday. Asia markets followed suit, initially, but closed in negative territory. European equities are higher, led by a 1.57% gain in the German DAX, while US Futures are in negative territory after giving up earlier gains.
A whiff of optimism wafted in Asia, after China PMI data, surprised to the upside, raising hopes that the worst of the COVID-19 crisis was behind them. Wuhan, ground zero for the outbreak, hasn’t reported any new cases for a week. The US may be picking up the slack. They recorded 576 deaths on Monday.
EURUSD was on a one-way street lower overnight, falling from 1.1051 to 1.0954 in early New York. Weak German data and Eurozone CPI falling to 1.0% y/y in March didn’t help sentiment, but broad US dollar demand for month-end portfolio rebalancing requirements weighed on prices.
GBPUSD traded choppily in a 1.2247-1.2404 range with prices action flipping between month-end portfolio rebalancing selling and profit-taking as GBPUSD continues to recoup some of the losses incurred in March.
USDJPY rallied from 107.82- to 108.71 in Asia, in part to Japanese year-end selling of JPY, and then consolidated that move in a 108.10-108.65 range. Prices were also underpinned by a jump in US Treasury yields and mild optimism for a global economic recovery after the Chinese PMI data was released.
AUDUSD and NZDUSD ignored domestic economic data and traded sideways until the European session.
AUDUSD was knocked from 0.6207 when Europe opened to 0.6090 in early New York trading. NZDUSD suffered the same fate, dropping to 0.5937 from 0.6035. US dollar demand for month-end portfolio rebalancing is behind the move.
Oil prices rallied, with WTI rising from a low of $19.27/barrel yesterday afternoon to $21.72/b in early NY trading. The gains were due to month-end flows, and a hefty dose of hope after President Trump and Russia’s Vladimir Putin reportedly discussed ways to alleviate the oil crisis. That could include the US removing some sanctions, put in place after the downing of Malaysia Airlines flight 17, in 2014.
USDCAD surged on the back of month-end demand with yesterday’s steep plunge in oil prices giving the rally an added boost. Low crude prices and bullish USDCAD technicals will limit the downside and keep the focus on 1.4600.
Stats Canada warns of weak GDP data ahead. They said that the reduced trade with China, flight suspensions and travel advisories since March, supply chain disruptions, temporary closures of non-essential businesses, and low crude prices will be deeply felt in subsequent months.
USDCAD technical outlook
The intraday USDCAD technicals are bullish while trading above 1.4170 looking for a break of 1.4290 to extend gains to 1.4360. Longer term the break above the 1.3980-1.400 area argues for a re-test of the 1.4690 level. If broken, 1.5150 is in the cards. For today, USDCAD support is at 1.4170 and 1.4120. Resistance is at 1.4290 and 1.4360.
Chart: USDCAD weekly
Source: Saxo Bank