Canadian Dollar Market Update March 5th – Canadian dollar sinking after BoC rate cut
FX Morning Update March 5, 2020
USD/CAD Open: 1.3385-1.3385 Overnight Range: 1.3383-1.3433
Oil is at $46.87, and gold is at $1,658.20. US markets are higher today.
The short-term USD/CAD technicals are Strong Buy. For today, USD resistance is at 1.3452. Support is at 1.3386.
Canadian dollar sinking after BoC rate cut
March 5, 2020
The Canadian dollar is sinking. The Bank of Canada somewhat surprised markets yesterday when the slashed the overnight rate by 0.50 basis points, to 1.25% from 1.75%. The aggressive interest rate action follows on the heels of a similar move by the US Federal Reserve on Tuesday.
The Bank of Canada statement was brief. It blamed the coronavirus outbreak for its actions saying: “, the COVID-19 virus is a material negative shock to the Canadian and global outlooks.” The continued to justify the move noting “It is becoming clear that the first quarter of 2020 will be weaker than the Bank had expected. The drop in Canada’s terms of trade, if sustained, will weigh on income growth. Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments. In addition, rail line blockades, strikes by Ontario teachers, and winter storms in some regions are dampening economic activity in the first quarter.”
The BoC hinted they would provide monetary stimulus on Wednesday when they released the statement of G-7 Finance Ministers and Central Bank Governors. It said, in part: “Given the potential impacts of COVID-19 on global growth, we reaffirm our commitment to use all appropriate policy tools to achieve strong, sustainable growth and safeguard against downside risks. Alongside strengthening efforts to expand health services, G7 finance ministers are ready to take actions, including fiscal measures where appropriate, to aid in the response to the virus and support the economy during this phase.”
The rate cut drove the Canadian dollar lower in a move that was exacerbated by plunging West Texas Intermediate (WTI) oil prices. WTI dropped 20% in a little over a week, and although prices have recouped some of those losses, the prospect of weak global crude demand is limiting gains. Opec is meeting in Vienna, Austria today. There are rumours that Saudi Arabia is pushing the cartel to add another 1.5 million barrels per day of production cuts to the 2.0 million bpd, announced in December. Russia has yet to agree.
Coronavirus hysteria is taking hold in the USA. California declared a statewide emergency after just one elderly person died from the virus.
The man reportedly had a litany of health issues. Declaring an emergency after one death in a state with a population of 39 million is a tad overkill.
The Dow Jones Industrial Average soared yesterday and closed with a 4.4% gain. This morning, futures prices suggest a bit of payback with Wall Street opening in negative territory.
The US dollar is on the defensive against the major G-10 currencies except against the Canadian dollar. BoC Governor Stephen Poloz delivers an “Economic Progress Report” today at 1:00 pm.
Today’s Suggested Range USD/CAD: 1.3285 – 1.3485.
Sincerely,
Rahim Madhavji | Knightsbridge Foreign Exchange | Toll-Free: 1-877-355-5239
www.knightsbridgefx.com
Knightsbridge Foreign Exchange has based the opinions expressed herein on information generally available to the public. Knightsbridge Foreign Exchange makes no warranty concerning the accuracy of this information and specifically disclaims any liability for trading decisions based on the opinions expressed and information contained herein. Such information and opinions are for general information only and are not intended to present advice with respect to matters reviewed and commented upon.