Wall Street stock prices were knocked for a loop yesterday, and those losses weighed on the Canadian dollar. The Dow Jones Industrial Average gave back all February's gains in a one-day 3.56% plunge in the benchmark index. The S&P 500 and NASDAQ followed the DJIA lower. Stock traders were spooked by news reports that the coronavirus was expanding rapidly outside of China. Large outbreaks in Northern Italy and South Korea reminded traders that the virus wasn't just a Chinese problem.
World Health Officials (WHO) didn't do anything to calm markets. A WHO official said "For the moment, we are not witnessing the uncontained global spread of this coronavirus, and we are not witnessing large-scale severe disease or death." Then added, "countries should be doing everything we can to prepare for a potential pandemic."
Japanese investors abandoned their quest for yield and sought safe-haven currencies driving USD/JPY down to 110.39 from 111.03. Prices are still above the uptrend line but have given back a large portion of last week's gains.
Analysts are speculating about how the Fed will react to the coronavirus-fueled, Wall Street meltdown. They cut U.S. rates when uncertainty around the China/U.S. trade talks threatened to derail economic growth. The COVID-19 outbreak threatens a similar result. The Fed is in "wait-and-see" mode and officials have said it is too early to tell if the virus will be an economic blip or have a more lasting effect.
The Canadian dollar stayed on the defensive, overnight. It lagged AUD/USD and NZD/USD gains while trading in a USD/CAD $1.3280-$1.3303 range. The domestic currency is suffering from elevated concerns that recent economic weakness, exacerbated by railway blockades and COVID-19 could force the Bank of Canada to cut rates as early as next week. Canada Gross Domestic Product results released on Friday could be the catalyst if Q4 growth is weaker than forecast.
EUR/USD traded sideways in Asia but came under pressure during the European session. EUR/USD dropped to 1.083, from an overnight peak of 1.0866, on fears of the coronavirus was spreading uncontrollably. The Italian coronavirus count rose to 270, a Canary Islands hotel was locked down, and Turkey quarantined a plane that arrived from Iran. Traders dismissed German Q4 GDP results. EURUSD intraday technicals are bearish below 1.0860.
GBP/USD traded firmer, in a $1.2916-$1.2989 range. U.K. Distributive Trades Survey data missed forecasts and took the steam out of the rally. European Union trade officials said they are willing to offer the U.K. a deal that includes no tariffs and no quotas if the U.K. agrees to abide by E.U. environmental, labour, and tax policies. The UK said they preferred to be economically and politically independent
Today's U.S. economic reports are second-tier leaving Wall Street price action to drive currency direction.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
