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Canadian Dollar Update, March 16, 2020 – Canadian Dollar bounced by central bank coordination

USD/CAD Open: 1.3888-1.3889, Overnight Range: 1.3728-1.3987

Oil is at $30.31 and gold is at $1,484.40. US markets are lower today.

The short-term USD/CAD technicals are neutral-bearish. For today, USD resistance is at 1.4023. Support is at 1.3877.

Coordinated G-7 central bank actions roil the Canadian dollar. The US Federal Reserve stunned global markets on Sunday when it announced a huge 1.0% cut in the range for federal funds. At 5:00 pm, and FOMC statement was issued saying “the Committee decided to lower the target range for the federal funds rate to 0 to 1/4 percent.”

The Fed justified its actions saying, “The coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the United States.” Also, the Fed announced a new $700 billion mortgage-backed security and Treasury buying program.

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The G-7 central banks issued a statement saying “The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing a coordinated action to enhance the provision of liquidity via the standing U.S. dollar liquidity swap line arrangements.”

There are more coordinated G-7 actions planned to combat the coronavirus. The G-7 leaders are meeting today. They are rumoured to be discussing a planned large-scale lockdown in major population centers. Prime Minister Trudeau is holding a press conference at 1:00 pm.

The Asia session opened with the Reserve Bank of New Zealand announcing a 0.75% rate cut. They said, “The Official Cash Rate (OCR) is 0.25 percent, reduced from 1.0 percent, and will remain at this level for at least the next 12 months.” NZDUSD rallied on the news but gave back most of its gains by the Toronto opening.

The Bank of Japan got into the monetary policy stimulus act. They announced they were doubling the amount of exchange-traded stocks they were buying, which didn’t impress traders. Safe-haven demand for yen fueled USDJPY selling.

EURUSD traded choppily in a 1.1052-1.1236 range. The single currency drifted lower just before the US open but remains bid due to the prospect of another ugly day on Wall Street. At one point, Dow futures had lost over 5.0% and triggered a circuit-breaker.

The coordinated G-7 central bank policy action has limited the negative impact to the currencies where interest rates were cut. Simply put, if they all are slashing rates, then they are all in the same boat. The same applies to the economic outlook. Canada will not be alone in experiencing negative Q1 2020 growth. However, if it lags the performance of the US economy, the Canadian dollar may suffer.

The Canadian dollar is collateral damage from Saudi Arabia and Russia’s oil price war. The domestic currency was already suffering from the government’s anti-oilsands policy, and the plunge in West Texas Intermediate crude prices added to its pain.

FX markets will be governed by Wall Street price action and the fear of a global lockdown.

Today’s Suggested Range USD/CAD: 1.3850 – 1.3950

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By KBFX | March 16, 2020 | Daily Update | 0 comments