March 30, 2020
USDCAD open (6:00 am EST) 1.4084-88 Overnight Range 1.4001-1.4167
- President Trump tempers enthusiasm for quick end to COVID-19 crisis
- Crude prices extend losses on slowing demand and Opec/Russia feud
- US cases of COVID-19 forecast to peak on April 15.
- USDCAD shrugs off surprise rate cut an QE announcement
- Safe-haven demand lifts US dollar across the board-JPY is the exception
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: USDCAD opened with a bid and climbed steadily in New York trading. That’s how things started on Friday, as well, when the Bank of Canada took the market by surprise.
They cut the benchmark overnight rate by 0.50% to 0.25%. USDCAD rallied and then plunged following the news, dropping from 1.4150 to 1.3925, a rather contrarian move. The BoC actions were discounted because they merely brought Canadian monetary policy back into alignment with that of the G-7 central banks. Mr Poloz and company just arrived late to the party. The news occurred alongside a wave of US dollar selling on misguided hopes the worst of the coronavirus outbreak was behind us, and on profit-taking ahead of the weekend. The magnitude of the move was exaggerated by poor liquidity as macro currency traders have stepped back from the markets. The void has been filled by opportunistic, program -trading scalpers, which distorts price action. The BoC also announced a Quantitative Easing program. They justified their actions saying: “The spread of COVID-19 is having serious consequences for Canadians and for the economy, as is the abrupt decline in world oil prices.”
They should be worried about oil prices. Prices have accelerated lower, losing 68% of their value since January due to sharply reduced global demand from the coronavirus, exacerbated by Saudi Arabia and Russia’s price feud. Canadian government policies and the many hurdles to pipeline expansion, undercut the domestic industry for years, leading to a steep price discount for Canadian crude. Western Canada Select, the benchmark price for Alberta crude, is trading at $6.11/barrel.
Weak oil prices eliminate any advantage that the Canadian dollar may enjoy over the other G-10 major currencies, suggesting USDCAD losses will be limited and prices are likely to bounce in a 1.4000-1.4500 range.
Chart: Western Canada Select (WCS)
COVID-19 unnerved markets in Europe, driving the major stock indexes into the red before rising US futures took them off their worst levels. News that the death toll in Italy surpassed 10,000 unnerved traders as did President Trump’s extension of social distancing rules until the end of April.
GBPUSD continues to outperform EURUSD, despite news Fitch downgraded UK sovereign debt to AA- from AA. GBPUSD dropped from 1.3175 on March 9 to 1.1420 on March 19, then rallied from 1.2140 to 1.2480 Friday, before trading lower today.
Those losses could be extended if month-end portfolio rebalancing flows emerge as the 14% drop in the S&P 500 index in March, implies large scale dollar buying.
EURUSD slid steadily overnight with traders spooked by COVID-19 news and fears of month-end demand for dollars.
USDJPY consolidated Friday’s losses in a 107.13-*108.28 range. Prices were supported by reports the Japanese government planned a JPY 60 trillion stimulus package while gains were capped by a slide in 10-year US Treasury yields to 0.631% from 0.684%.
AUDUSD and NZDUSD traded lower on the back of broad US dollar strength. Traders ignored news of China’s PBoC rate cut.
Equity market price action and President Trump’s press conference will dictate FX direction today.
USDCAD technical outlook
The intraday technicals are bullish above 1.3980, supported by today’s move above 1.4050 which set the stage for further gains to 1.4275. the March uptrend line is intact above 1.3980 and the intraday technicals are bullish above 1.4070. For today, support is at 1.4180 and 1.3980. Resistance is at 1.4180 and 1.4280.
Chart: USDCAD 4 hour
Source: Saxo Bank