March 18, 2020

USDCAD open (6:00 am EST) 1.4307-11    Overnight Range 1.4169-1.4343

  • USDCAD soars despite another $30 billion in fiscal aid coming down the pipe
  • GBPUSD in free-fall after yesterday’s UK £350 support package
  • Oil prices free-falling as Saudi Arabia opens the taps
  • A trillion dollars doesn’t buy much relief-S&P futures trigger circuit breaker in Europe
  • US dollar opens in NY with gains, except against JPY, and CHF

 Chart: Currency gain/loss (%) against the US dollar from NY close March 6 to March 13  (5:30 PDT)

Source: Saxo Bank/IFXA

FX Recap and outlook:  The US government economic aid proposal is flirting with a trillion dollars, which would include support for airlines, small businesses, and individuals.  Canada is stepping up to the plate, as well.  The government is reportedly announcing another $30 billion which includes financial help to individuals laid off due to COVID-19. The US and Canada are planning to close the border to “non-essential travel.”

Wall Street closed with the DJIA rising 5.3%, a mere pittance compared to Monday’s 12.9% plunge. Those gains did not continue in Asia, or Europe and S&P Futures were down 3.70% as of 6:30 am EDT.

West Texas Intermediate oil prices dropped over 38% since March 9 and are trading at the overnight low of $25.25 in NY.  The Saudi/Russia price war fueled by the Kingdom’s plan to pump 12.3 million barrels/day of crude in April, and global recession fears from the COVID-19 pandemic, are driving prices lower.  That move added to the negative FX risk sentiment.

GBPUSD sellers are in panic mode.  Prices plunged from 1.2025 at yesterday’s NY close to 1.1845, so far, this morning.  The drop is despite the UK governments £350 billion spending package to help offset the economic damage from COVID-19.  Traders are also concerned about the UK/EU trade talks.

EURUSD dropped to 1.0956 from 1.1045, undermined by equity market weakness, coronavirus fears and the lack of support measures from the European Central Bank

USDJPY chopped about in a 106.765-107.70 range.  Prices were supported by soaring US 10 year Treasury yields which climbed from 0.772% to 1.195%, on the back of the US trillion-dollar spending plan. However, safe-haven demand for yen, limited gains.

AUDUSD and NZDUSD sank under the weight of global recession fears, low-interest rates, and broad US dollar demand.

USDCAD rallied to 1.4343 from an overnight low of 1.4169 on the back of plunging oil prices and broad US dollar demand.  Canada’s main oil export Western Canada Select, is trading at a $12.20 discount to WTI, or about $13.05/barrel.  In 2018, oilsands producers needed WTI at around $40.00/b to break-even.  Ottawa will find it tough to collect royalties from bankrupt companies. 

Economic data is irrelevant to FX markets currently.

Traders will continue to focus on government spending plans, coronavirus news, and equities.

USDCAD Technical Outlook

The USDCAD technicals are bullish.  1.4045 represented the 76.4% Fibonacci retracement level of the Jan. 2016-Sep.2017 range.  The daily chart doesn’t have any resistance between 1.4350 and 1.4530.  However, momentum indicators suggest USDCAD is at an extreme-overbought level, which warns prices are likely to retreat.   Today’s range 1.4170-1.4360

Chart: USDCAD weekly

Source: Saxo Bank