February 21, 2020

USDCAD open (6:00 am EST) 1.3259-63   Overnight Range 1.3247-1.3267

Canadian retail sales were unchanged in December, which was largely expected. Statistics Canada said “Higher sales at building material and garden equipment and supplies dealers, as well as food and beverage stores were more than offset by lower sales at motor vehicle and parts dealers and gasoline stations.”

USDCAD is also undermined because the Loonie is viewed as a proxy to the greenback.  Investors selling low yielding Japanese and Eurozone investments in favour of higher-yielding US assets are also taking note of the Canadian yield difference.  US Fed funds range is 1.50-1.75%.  The European Central Bank deposit rate is -0.5%, while the Bank of Japan rate is -0.10%.  Canadian rates areas favourable as those of the US.  The Bank of Canada overnight rate is 1.75%,

The US dollar is still in demand as worries about the global economic impact from the coronavirus outbreak outweigh economic data.  Confusion around China’s every-changing COVID-19 diagnostic methods and evidence the outbreak has worsened outside of China limited US dollar losses from modestly better Eurozone preliminary PMI reports.

The US dollar is poised to close the week with solid gains across the major G-10 currency spectrum, led by a 1.8% rise against JPY.  Gold prices rose 1.2%, while Brent oil fell 7.2%.

The Canadian dollar is close to unchanged.

Chart: Weekly Currency gain/loss (%) against the US dollar from 5 pm NY Feb. 14 to 6 am NY Feb.21 (6:00 EST)

Source: Saxo Bank/IFXA

FX Recap and outlook:  New coronavirus cases are popping up all over the world, and that is underpinning the US dollar.   South Korea says it has 204 confirmed cases, Germany has 16, Italy has 6, and the US has 26.  Canada only has 9 confirmed cases.

Those fears were enough to stop a data-induced EURUSD rally in its tracks.  The single currency inched higher from its Asia low of 1.0785 and reached 1.0819 after the release of a series of Eurozone PMI reports.  German preliminary February Manufacturing PMI was 47.8 compared to the forecast of 44.8.  Composite PMI was 51.1 vs forecast of 50.8. The positive sentiment was tarnished by the dip in Services PMI to 53.3 from 54.2 previously. That was good news for the slumping German economy. However, the uncertainty around COVID-19 led to EURUSD retreating to 1.0800 in early New York trading.  The intraday technicals are bearish while prices are below 1.0830.

GBPUSD outperformed EURUSD as coronavirus fears took a back-seat to what trader’s hope is the start of a post-Brexit rebound in the UK economy.  Manufacturing PMI jumped to 51.9 from 50 previously, and GBPUSD climbed to 1.2935 after closing in NY at 1.2881.

USDJPY dipped on the back of pre-weekend profit-taking, with a dash of risk-aversion sentiment tossed in, and further undermined by falling US Treasury yields. 10-year US Treasury yields were 1.58% last Friday and are 1.49% this morning.  USDJPY dropped from 112.18 to 111.50 at the start of the European session, but ongoing bullish technicals and broad US dollar demand lifted prices to 111.90 in NY.

Fears the coronavirus outbreak was widening, spanked AUDUSD and NZDUSD. Comments from Chinese officials that Jan-Feb import/export growth would fall notably, added to the negative sentiment.

USDCAD continues to track oil price movements while outperforming against its commodity currency bloc cousins. The Canadian dollar may be benefitting, to a degree, by being a US dollar proxy.  Canada is less exposed to a downturn in the Chinese economy than Australia or New Zealand, as the US is Canada’s largest trading partner, and its economy is chugging along.  A significant volume of USDCAD options expire today. The strikes are reportedly in the 1.3250-55 area which may influence price activity at that time.

USDCAD Technical Outlook

The USDCAD technicals are bullish above 1.3210, looking for a break above 1.3270 to retest resistance in the 1.3350 area.  A decisive break below 1.3210 opens the door to a move to 1.3050. For today, USDCAD support is at 1.3220 and 1.3190.  Resistance is at 1.3270 and 1.3320.  Today’s Range 1.3230-1.3320.

Chart: USDCAD 4 hour

Source: Saxo Bank