The Canadian dollar is riding a wave of positive risk sentiment. Signs that the rate of COVID-19 infections is starting to slow in countries such as Germany, Italy, and Spain boosted risk markets yesterday and again overnight. The Dow Jones Industrial Average climbed 7.73% yesterday after COVID-19 reports of "significant declines in the number of new people hospitalized, admitted to intensive care units and intubated, in the past two days."
That sentiment carried forward into Asia, and fueled equity gains in that region. Japanese Prime Minister Shinto Abe declared a "State of Emergency" for five regions in the country and promised to provide details of a $900-billion stimulus plan on Wednesday. USD/JPY traded firmer, supported by a rise in U.S. Treasury yields.
EUR/USD and GBP/USD rallied on the back of broad U.S. dollar weakness. GBP/USD recovered from losses in Asia following the news that U.K. Prime Minister Johnson, who is suffering from COVID-19, was moved to intensive care.
The Q1 2020 Bank of Canada Business Outlook Survey (BOS) was released on Monday. The quarterly report results are a useful study allowing analysts and economists a window into the Bank of Canada’s monetary policy decision-making process. Not this time. The data for this report was compiled before the impact of the COVID-19 outbreak and confidence was already deteriorating.
Traders totally ignored the report and justifiably so. The survey was taken between February 11 and March 6. Meanwhile, the Bank of Canada already reacted to the deteriorating economic landscape. They cut interest three times in March, from a peak of 1.75% to 0.25% by March 27, and embarked on a small quantitative easing program.
The BoC needed to act.
The federal government said that more than three million Canadians applied for jobless benefits since mid-March.
Normally, that would be bad news for Canadian dollar bulls, but these are normal times. The other major G1-0 nations are experiencing similar spikes in unemployment.
Canadian dollar traders continue to be fixated on oil price movements and coronavirus pandemic headlines.
West Texas Intermediate, the North American benchmark jumped over 16% since last Tuesday on hopes that President Trump will help put an end to the Saudi/Russia price war. Trump suggested productions cuts of as much as 10 million barrels per day were possible, but that would be unlikely unless non-Organization of the Petroleum Exporting Countries producers like Canada, the U.S. and Norway, also cut production.
Traders are hoping for news after Thursday’s OPEC/Russia phone meeting.
Oil price and equity moves will continue to provide the Canadian dollar with direction.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
