Canadian Dollar Update, April 30, 2020 – Canadian Dollar gains on month-end demand
USD/CAD Open: 1.3864-68, Overnight Range: 1.3850-1.3914
WTI Oil is at $18.13 and gold is at $1,717.70. US markets are lower today.
For today, USD resistance is at 1.3954. Support is at 1.3828.
• Downbeat FOMC leaves policy unchanged
• ECB leaves rates unchanged but tweak some policy initiatives
• China data underpins positive risk sentiment
The Canadian dollar extended yesterday’s gains overnight and is poised to finish this month, 2.7% higher than it was on April 1. The latest bout of Canadian dollar strength has been driven by a 77% rebound in oil prices since Tuesday and by sizable portfolio rebalancing demand for Canadian dollars. However, further gains beyond today are not likely to be sustained. Wall Street stocks rallied strongly in April with the S&P 500 index gaining over 17% since the beginning of the month. Those gains mean that many equity portfolio managers need to sell US dollars to bring their positions back into line with their mandates and benchmarks. That Canadian dollar demand will disappear shortly, eliminating a major factor supporting the currency.
The WTI oil price rally since Tuesday has been impressive. However, for most Canadian oil producers, the gains are still well below the price point they need to break even on production costs. Traders are hoping that OPEC/Russia oil production cuts and the easing of coronavirus restrictions in major cities around the world will provide additional support to prices. Unfortunately, gains will be limited as oil supplies continue to outstrip demand.
The Federal Open Market Committee left US interest rates and policy unchanged, which was expected after three FOMC meetings in March. The FOMC left the door open to further stimulus measures saying, “The Federal Reserve is committed to using its full range of tools to support the US economy in this challenging time, thereby promoting its maximum employment and price stability goals.” The outlook wasn’t too optimistic saying “Millions of workers are losing their jobs. Next week’s jobs report is expected to show that the unemployment rate, which was at 50-year lows just two months ago, has surged into double-digits. Household spending has plummeted as people stay home, and measures of consumer sentiment have fallen precipitously.” Nevertheless, US stocks rallied because the statement implied low rates would be around for the foreseeable future.
The Wall Street rally set the tone for Asia markets which followed suit and were supported by an improved tone to risk sentiment when China PMI data was released, which was in line with forecasts.
Traders largely ignored a host of Eurozone economic data. Eurozone GDP dropped 3.8% y/y in Q1, but that was viewed as “old news.”
Today’s Suggested Range USD/CAD: 1.3810– 1.3910