The Canadian dollar is on the defensive after a steep drop in oil prices to start the week. West Texas Intermediate (WTI), the North American benchmark price for crude, gapped lower at the Asia open, and it knocked the Canadian dollar down, in the process. Both instruments recovered, albeit modestly and the Loonie is trading in Toronto right where it finished on Friday.
Chinese markets reopened after their Lunar New Year holiday’s, and they were ugly as local traders had their first opportunity to react to the coronavirus outbreak. China announced that there were 17,205 confirmed cases and that the death toll climbed to 361. The Shanghai Shenzhen CSI 300 index plummeted, losing 7.9% and that was despite government intervention. The Peoples Bank of China (PBOC) reportedly ordered local brokerage firms not to allow "short-selling," even as many commodity prices reached "limit-down" levels. The PBoC injected 1.2 trillion yuan into the system and trimmed seven- and 14-day repo rates by 10 basis points. USD/CNY soared rising from 6.9364 on January 24 to 7.0260.
China’s state oil company Sinopec said refinery production had dropped by 600,00 barrels per day, and there are rumours that China oil demand is down 20%. That news was offset by a report Saudi Arabia would temporarily reduce its crude production by 1.0 million barrels/day.
The Chinese market action spooked the commodity bloc currencies, although the reactions were relatively tame. The Australian, New Zealand, and Canadian dollars had already reacted to the coronavirus, while Chinese markets were playing "catchup." AUD/USD and NZD/USD opened in Toronto, mostly unchanged from Friday’s closing levels.
That wasn’t the case for the British pound. GBP/USD screamed lower, falling from $1.3205 at the Asia open to $1.3048 in Toronto. Traders were unnerved ahead of, and after U.K. Prime Minister Boris Johnson and European Union Head of Task Force for U.K. relations, set out their trade negotiating positions.
EUR?USD was weighed down by broad U.S. dollar demand and the rise in USD/CNY. Markit Manufacturing Purchasing Managers' Index reports from Spain, Italy, France, and Germany, as well as the eurozone, were a tad firmer than the previous month but still below 50, which indicates economic growth is contracting. EUR/USD dropped to $1.1069 from $1.1094.
The Canadian dollar continues to be weighed down by the shift into safe-haven trades due to the Wuhan coronavirus, and it could suffer further losses if today’s U.S. Institute for Supply Management Manufacturing survey is higher than expected. There are not any notable Canadian economic reports available today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
