March 5, 2020

USDCAD open (6:00 am EST) 1.3405-09     Overnight Range 1.3385-1.3411

The Canadian dollar is the laggard, in overnight trading.  The Bank of Canada’s somewhat surprising 50 bp rate cut yesterday, saw USDCAD spike to 1.3425 from 1.3330.  It consolidated, those gains, overnight.  Meanwhile the rest of the G-10 major currencies posted gains against the US dollar, led by JPY which rallied 0.65%.

Asia equity markets followed Wall Street’s lead.  Hong Kong’s Hang Seng index closed 2.02% higher, and Japan’s Nikkei 225 finished with a gain of 1.06%.  The major European indexes are down on the day, spooked by widening coronavirus outbreaks in Europe, profit warnings from Airbus, an airline bankruptcy, and a lack of top-tier Eurozone data.  US equity futures point to some payback on Wall Street, after the DJIA’s nearly 1,200 point gain and widening domestic COVID-19 fears.

 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:  EURUSD traded sideways in Asia and rallied in Europe, rising from 1.1122 to 1.1177.  Elevated coronavirus fears fueled and news that California (population 39 million) declared a statewide emergency sparked speculation that the Fed would cut interest rates again, when the meet March 18.  California’s action occurred after an elderly person (around Biden or Bernie’s age), with a host of underlying health issues, became the states first coronavirus victim. climbed to 1.2929 from 1.2862, bolstered by the Fed rate cut on Tuesday and talk of a follow-up rate cut on March 18.

GBPUSD climbed to 1.2929 from 1.2862, bolstered by the Fed rate cut on Tuesday and talk of a follow-up rate cut on March 18.

Gains were tempered after Goldman Sachs analysts predicted the Bank of England would cut UK rates by 0.50 bps on March 26.  Falling UK stock prices, upcoming UK/EU trade talks, and the risk of a rate cut, should limit GBPUSD upside in the near term.

USDJPY is under pressure from safe-haven demand for yen, and plunging US Treasury yields.  The 10-year Treasury yield dipped to 0.934% overnight.

AUDUSD underperformed against  NZDUSD after an Australian Treasury official said coronavirus would knock 0.5% from Q1 GDP growth.  Broad US dollar weakness underpinned NZDUSD.

WTI oil spiked to $47.55 from $46.35 following a report that Opec agreed to an additional 1.5 million barrel/day production cut, on top of the existing 2.0 million bpd.  However, the lack of confirmation from cartel officials drove prices back to $46.78/b in New York trading.  Opec is still deliberating their next move.

The Bank of Canada blamed the coronavirus for the 0.50% rate cut saying “the COVID-19 virus is a material negative shock to the Canadian and global outlooks, and monetary and fiscal authorities are responding.”    Governor Stephen Poloz will provide further insight into the Governing council’s deliberations, just after lunch when he delivers an “Economic Progress Report.”

Today’s US data, (weekly jobless claims, factory orders) was rendered obsolete with Tuesday’ Fed rate action.  The Canadian data calendar is empty. 

USDCAD Technical Outlook

The intraday USDCAD technicals are bullish above 1.3380, looking for a break above 1.3430 to extend gains to 1.3550.  A break below 1.3380, targets 1.3340. For today, USDCAD support is at 1.3380 and 1.33400.  Resistance is at 1.3430 and 1.3460.  Today’s range 1.3360-1.3440

Chart: USDCAD  4 hour

Source: Saxo Bank