Coordinated G-7 central bank actions roil the Canadian dollar. The U.S. Federal Reserve stunned global markets on Sunday when it announced a huge one-percentage-point cut in the range for federal funds. At 5:00 p.m., a Federal Open Market Committee 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.
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 p.m..
The Asia session opened with the Reserve Bank of New Zealand announcing a 0.75% rate cut. The bank said, "The Official Cash Rate (OCR) is 0.25%, reduced from 1%, and will remain at this level for at least the next 12 months." NZD/USD 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. It announced it was doubling the amount of exchange-traded stocks it was buying, which didn’t impress traders. Safe-haven demand for yen fueled USD/JPY selling.
EUR/USD traded choppily in a $1.1052-$1.1236 range. The single currency drifted lower just before the U.S. 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 U.S. 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.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
