March 24, 2020

USDCAD open (6:00 am EST) 1.4392-96    Overnight Range 1.4377-1.4523

  • USDCAD recoups overnight losses in early New York trading due to oil price decline
  • WTI oil prices climb 4.5% before erasing entire move after NY opened
  • Asia and European equities soar-US Futures hit “limit-up”
  • Markets await news of $2 trillion US stimulus package
  • US dollar drops on improved risk sentiment, except against CAD

Chart: Currency gain/loss (%) against the US dollar from NY close to 5:30 am PDT

Source: Saxo Bank/IFXA

FX Recap and outlook:  USDCAD continues to underperform.  WTI rallied 4.5% overnight, and USDCAD dropped alongside the gains. The oil rally ended abruptly when prices dropped from $25.14/barrel to $23.88/b, which lifted USDCAD from 1.4376 to 1.4522.   Oil traders quickly realized that despite the trillions of dollars of fiscal and monetary stimulus, lock-downs in cities around the world would curtail oil demand.  The Federal government’s actions to combat the economic impact of the coronavirus is expected to drive the Federal budget deficit to above $100 billion which may also help to limit USDCAD losses.

Equity traders in Europe and Asia took heart from reports that US politicians were close to agreeing to a $2 trillion spending bill.  The major global indices soared.  The Nikkei 225 climbed 7.13%, the German Dax rose 6.15%, and the UK FTSE 100 gained 4.37%.   S&P 500 futures jumped and triggered a limit-up circuit breaker.

G-10 governments and central banks have flooded financial markets with cash, slashed interest rates, and offered hundreds of billions in domestic financial incentives to support markets, businesses, and individuals.  The overnight price action suggests that traders are getting the message and that perhaps, prices have dropped far enough.

EURUSD traded with a bid, rising from 1.0725 to 1.0865.  Prices were underpinned in Europe despite German Manufacturing PMI and Eurozone Manufacturing PMI reports showing the economies are heading towards a recession.

GBPUSD climbed steadily from 1.1511 in Asia to 1.1723 in early New York trading.  UK Manufacturing and Services PMI data were ignored.  For the record, both reports showed the UK economy contracting sharply, but the news was expected.  Instead, traders expect some sort of result from the G-10 stimulus actions.

USDJPY rallied in Asia, retreated in Europe, and opened in New York below Monday’s close.  Broad US dollar weakness and modestly softer US Treasury yields undermined prices

AUDUSD and NZDUSD rallied with the improved sentiment from the G-10 fiscal and monetary stimulus actions, which led to widespread US dollar selling and firmer commodity prices.

The FX market will continue to be driven by Wall Street price action, and US fiscal stimulus plans with economic data being ignored.

USDCAD Technical Outlook

The USDCAD technicals are bullish while the March uptrend line at 1.4120 is intact, with additional support seen at 1.4330.  A break above 1.4550 suggests a retest of 1.4660 while a drop below 1.4330 targets 1.4120. For today, support is at 1.4370 and 1.4320.   Resistance is at 1.4530 and 1.4590 

Chart: USDCAD 4 hour

Source: Saxo Bank