The Canadian dollar finally found some support overnight, after free-falling since Tuesday, and it had nothing to do with any domestic reasons.
Canadian dollar direction, like the rest of the G-10 majors, continues to be dictated by broad U.S.-dollar sentiment. That sentiment shows a preference to buy greenbacks.
USDCAD touched $1.3865 on April 14 and hit $1.4135 overnight as weak crude oil prices, and bullish U.S. dollar sentiment underpinned prices.
Wednesday’s Bank of Canada policy meeting was a non-event for FX traders, as G-7 central bank monetary policy initiatives are well-coordinated. The BoC cut rates three times in March which removed the impetus for any rate action.
They were content to leave rates unchanged, noting that the current rate of 0.25 percent, is considered "its effective lower bound."
The BoC announced an expanded Quantitative Easomg program. It will increase the amount of Treasury Bills bought at auction and announced new Provincial and Corporate bond buying programs.
The BoC said that it was not providing their usual forecasts but instead offered forecast ranges. The governors said "Bank analysis of alternative scenarios suggests the level of real activity was down 1-3 percent in the first quarter of 2020 and will be 15-30 percent lower in the second quarter than in fourth-quarter 2019. CPI inflation is expected to be close to 0 percent in the second quarter of 2020. This is primarily due to the transitory effects of lower gasoline prices."
Canadian dollar traders largely ignored the BoC comments and focused on U.S. dollar sentiment. The major U.S. equity indexes were sinking alongside oil prices, which put a risk aversion bias into FX trading. The U.S. Energy Information Administration (EIA) said U.S. crude inventories surged to19.1 million barrels in the previous week.
The news served to highlight the plunge in global demand because of coronavirus travel restrictions. Oil prices consolidated losses just above yesterday’s low in overnight trading.
FX markets are cautious ahead of this morning’s U.S. jobless claims data, which is expected to show a gain of 5.1 million. If claims exceed last week’s 6.6-million-job increase, they may throw a wet blanket over hopes that President Trump will be able to re-open the U.S. economy around May 1.
If so, the U.S. dollar will see fresh demand and the Canadian dollar will suffer as a result.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
