April 20, 2020
USDCAD open (6:00 am EST) 1.4078-82 Overnight Range 1.4017-1.4104
- Storage capacity constraints sink WTI oil, boosts USDCAD
- US planning to announce another $450 billion in funding for small businesses
- PBoC cuts 1 and 5 year Loan Prime rate by 20 and 10 bps, respectively
- US dollar opens mixed but still down from Friday’s open
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 extended its overnight gains in NY trading alongside a fresh drop in oil prices. WTI plunged to $11.04/b in Toronto, after closing Friday at $18.27/b mostly due to crude contract technical factors although capacity limitations were another issue. WTI futures traders are switching out of the May contract and into the June (or longer ) contract and that is creating pricing issues, especially as traders expect a rebound in oil demand by the end of the summer.
It takes Two to Contango, and the May/September contract contango is $17.85. Contango is the term for when the spread between the front contract (in this case May) and the further out contracts widens. The contract for September delivery is at $31.00/b today, $19.96/b higher than the May contract low this morning. To put it in perspective, Alberta’s Western Canada Select (WCS) is worthless. In fact, based on today’s prices, Alberta producers would pay you $1.59/b to take the oil off their hands. WCS traded at a $12.63/ b discount to WTI on Friday
EURUSD tried to extend Friday’s rally and climbed to 1.0896 from 1.0842but lost momentum in early NY trading. Traders are hoping that EU coronabonds will be on the agenda at this weeks EU summit. EU Economics Commissioner Paolo Gentiloni said the EU might need to spend €1.5 trillion to combat the virus.
GBPUSD traded choppily, with a negative bias in a 1.2436-1.2499 range. Prices inched lower in early NY trading, in part because of comments from Bank of England Deputy Governor Ben Broadbent. He warned that a 35% drop in the UK economy was not unrealistic.
USDJPY rallied on broad dollar demand, helped by a dip in S&P futures which are suggesting Wall Street will give back some of Friday’s gains today. Japan increased the size of its economic stimulus package to JPY 117.1 trillion, from JPY 108.2 trillion.
AUDUSD and NZDUSD rallied with Kiwi outperforming. New Zealand Q1 2020 CPI rose 2.5% (forecast 1.8%) which gave Kiwi and added boost, as did positive comments by NZ PM Ardern. She said NZ would move out of lock-down on April 27.
USDCAD was the biggest gainer overnight fueled by the drop in WTI oil prices to 1999 levels. Prices climbed to 1.4131 in early Toronto trading as oil prices inched lower. Further USDCAD gains from the steep decline in oil prices may be limited, as traders realize that Canada should not be considered a petrocurrency.
There isn’t any data of note from the US or Canada available today.
USDCAD technical outlook:
The intraday USDCAD technicals are bullish following last week’s break above the downtrend line at 1.4040. The uptrend from April 13 at 1.3850 comes into play today at 1.4010 and while prices are above that level, a test of resistance at 1.4180 is likely. For today, USDCAD support is at 1.4050 and 1.4010. Resistance is at 1.4140 and 1.4180. Today’s Range 1.4060-1.4150
Chart: USDCAD 4 hour
Source: Saxo Bank