Things don't look so positive for the Canadian dollar. Low oil prices and a dovish Bank of Canada monetary policy outlook have exacerbated losses stemming from coronavirus risk aversion. The Canadian dollar barely made any upside headway overnight, even though global risk was positive.
The China coronavirus outbreak is showing no signs of abating. China health officials said there were 24,324 confirmed coronavirus cases and that 424 people have died. There are 24,505 cases worldwide. Country’s are ramping up measures to protect their citizens. Hong Kong leaders said that all arrivals to Hong Kong from China would face a compulsory quarantine. The U.S. government is urging Americans to not travel to China. United and American Airlines have suspended flights. Japan has quarantined thousands of passengers on a cruise ship. The virus could result in a two-percentage-point drop in China’s Q1 Gross Domestic Product growth.
Global equity markets have reacted positively to the Peoples Bank of China’s efforts to support its economy. They have injected 1.2 trillion yuan into money markets and have trimmed seven- and 14-day repo rates. Asia’s main equity indexes closed with substantial gains, and European indexes are higher.
U.S. equity futures point to a strong open on Wall Street with positive risk sentiment being fueled by rumours that researchers in China identified to possible drugs to cure the virus. A World Health Organization (WHO) official threw cold water on that sentiment when he said: "there are no know known therapeutics."
Elsewhere, AUD/USD was in the spotlight. Reserve Bank of Australia Governor Philip Lowe suggested that the RBA was not likely to cut interest rates any time soon. He pointed to upticks in employment and inflation as reasons to warrant caution. AUD/USD rallied to $0.6772 from $0.6725, with improved global risk sentiment supporting the gains. The New Zealand dollar underperformed compared to its Antipodean cousin, thanks to a mixed employment report and soft ANZ Commodity price data.
USD/JPY traders jumped all over the improved risk tone and accelerated their buying of the currency pair. Prices climbed to 109.71 after being at 108.30 in Asia on Monday. The rally was underpinned by a recovery in 10-year U.S. Treasury yields which were 1.505% on January 31 and 1.635% today.
GBP/USD is trading erratically. Better than expected domestic economic data are offsetting bearish sentiment from the UK and European Union opening statements on the trade talks.
EUR/USD is under pressure from unwinding safe-haven trades and mixed to soft eurozone data which has led to EUR/USD falling from $1.1045 to $1.1016.
Today’s economic reports include Canadian Merchandise Trade data is expected to rebound after Novembers rail-strike slump. The Institute for Supply Management Non-manufacturing report is the main U.S. release.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
