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FX Monthly Outlook – April 2020

Economic Outlook and Summary

The Federal Reserve interest rate currently stands at 0-0.25%, with expectations of a neutral stance throughout 2020. The rates followed a significant downturn in the markets, as Covid-19 resulted in a State of Emergency declaration, forcing many non-essential businesses to shut down. Despite this, investors are exhibiting slightly positive sentiments in response to the Federal Reserve’s willingness to provide the liquidity necessary to stimulate markets. Additionally, Jerome Powell indicated that the Federal Reserve is prepared to utilize the full breadth of its existing tools, in addition to the development of new tools, in order to aid in the economy’s recovery.

The USDCAD has significantly rallied from its January lows, briefly trading above the 1.45 level. The Bank of Canada issued a neutral stance in its most recent interest rate call, due to economic uncertainty and already low interest rates. The announcement comes amidst concerns over a deal between OPEC and Russia, and at a time where coronavirus has slowed production from one of the world’s largest oil consumers—China. Further concerns are developing as analysts predict oil storage will reach its capacity in the near-term, which may result in further depreciation of the Loonie. Going forward, the USDCAD is expected to move within the 1.43 range through the second quarter of 2020.

The US Dollar and Federal Reserve

The Federal funds rate was reduced to 0-0.25% amidst concerns surrounding coronavirus and its effect on the economy. Uncertainty in the markets, as a result of the pandemic, led to a selloff greater than was seen in the housing crisis of 2008. Although the selloff resulted in major indices slumping below decade lows, investor sentiments have slightly recovered in response to the Feds aggressive stance on monetary policy. The US, and global, economy is expected to recover in the mid-term; however, short-term estimates of recovery within the coming months may be hopeful, according to analysts.

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The Canadian Dollar and Bank of Canada

The USDCAD reached record highs recently, as it steadily trades well above the 1.40 level. The performance can be tied to a fall in oil prices as OPEC struggled to reach a deal with Russia. Both parties flooded the European markets with oil, driving oil prices to record lows as the excess supply from both sides caused prices to plummet. Given the Loonie’s correlation to oil prices, the CAD experienced a greater depreciation in value, relative to its peers—EUR, USD, & GBP.

Additionally, the Bank of Canada issued a neutral rate decision, holding the overnight rate steady at 0-0.25%. The announcement was accompanied by expectations of a significant downturn, as seen by a nine percent drop in economic activity for the month of March.

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By KBFX | April 16, 2020 | Monthly Canadian Dollar Outlook/Forecast | 0 comments