The Canadian dollar continues to derive direction from oil price action, coronavirus headlines, and Canadian and U.S. government fiscal stimulus plans. There is no cure for COVID-19, and that means no cure for financial market volatility. The TSX lost 6.57% last week, but it was a better performance than the Dow Jones Industrial Average. The Dow Jones Industrial Average lost 4.55% Friday and finished the week with a 9.72% loss. Those stock market moves, oil price action, and fiscal stimulus, actions bounced the USD/CAD in a $1.4160 - $1.4665 range during the week.
This week could be just as ugly if the Asia open is any guide. U.S. equity futures hit limit down. Traders were spooked by the U.S. government’s inability to pass coronavirus legislation.
West Texas Intermediate (WTI) gapped lower. Prices dropped from Friday’s close of $23.66 U.S./barrel to $20.82/before rebounding. Russia and Saudi Arabia are continuing the price war. Russia reportedly balked at Saudi Arabia’s plan for additional production cuts to boost crude prices because cuts would benefit US Shale producers, at the expense of Russia and members of the Organization of Petroleum Exporting Countries. The U.S. producers are hurting because crude prices are well-below their breakeven price of $40.00/b
The Canadian dollar is collateral damage in the oil price war and prices plunged in Asia, alongside the crude price slide.
Oil price movements and coronavirus headline will ensure there will not be a shortage of intraday FX volatility this week. There are over 330,000 COVID-19 cases globally.
Canada had 1,426 confirmed cases (as of March 22) and Canadian authorities expect the domestic number to rise exponentially. However, Prime Minister Justin Trudeau said on Sunday Canada is not at the point where the government needs to take emergency measures to force people to stay at home.
The House of Commons reconvenes on Tuesday and is expected to pass all the dramatic measures announced last week. U.S. lawmakers are in the same boat as Canada. They are trying to finalize the details of a $1.3 trillion federal stimulus package.
The Reserve Bank of New Zealand announced a $30-billion Large Scale Asset Purchase (LSAP) program, saying "The negative economic implications of the coronavirus outbreak have continued to intensify." If the news was an attempt to inject some calm into markets, it backfired in FX.
NZD/USD dropped from $0.5677 to 0.5605. AUD/USD mirrored the kiwi move.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
