The Canadian dollar was the only major G-10 currency to lose ground against the U.S. dollar overnight. That may be due to lingering negative sentiment following the Bank of Canada’s policy statement and Monetary Policy Report on Wednesday.
The BoC delivered as expected, leaving rates unchanged, and saying it would continue with the $5-billion/week quantitative easing program. Traders may have been unnerved by the BoC asserting that domestic rates would stay low until "economic slack is absorbed so that the 2% inflation target is sustainably achieved."
The BoC Monetary Policy Report (MPR) admitted that forecasts were meaningless due to the COVID-19 outbreak. It said, "We are facing many uncertainties, the biggest of which is the unknowable course of the virus itself. As a result, we cannot forecast with the usual degree of accuracy in our economic projections."
The Canadian dollar isn’t getting any support from oil prices, either. The Organization of the Petroleum Exporting Countries announced that crude production would increase by 2.2 million barrels per day, beginning August 1, putting an end to the emergency cuts implemented in April.
The news was widely telegraphed, and WTI prices barely budged. Canadian crude prices are further discounted due to pipeline constraints. Western Canada Select (WCS) Alberta’s benchmark crude export trades at a $7.30/b discount to WTI ($40.50/b).
The European Union Summit, which began today, has dampened trading enthusiasm. Officials are discussing the Germany/France COVID-19 Relief Fund proposal. The €750.0-billion Relief Fund, is a combination of grants and loans which requires unanimous backing from the 27 member EU. It won’t be easy. Austria, Sweden, Denmark, and the Netherlands oppose sharing debt liabilities. They see it as a benefit to spendthrift states while being unfair to thrifty regions.
EUR/USD is drifting higher in anticipation of a deal. If it occurs, a spike to $1.1800 cannot be ruled out.
Global equities are trading on a mixed note. S&P 500 futures are slightly higher, suggesting Wall Street will open on a positive note. Economic data continues to be ignored due as gains and losses are all due to the coronavirus. FX traders are cautious about getting too bullish ahead of the weekend and in the face of record new COVID-19 cases in the U.S.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
