The Canadian dollar did not participate in the broad U.S. dollar selloff overnight. Instead, it was sold due to the ongoing slide in crude oil prices, elevated expectations that the Bank of Canada will cut interest rates next week, and heightened fears that the railway blockades will negatively impact the domestic economy.
Teck Resources pulled its application for a massive new oilsands mine in Alberta. Teck complained that the lack of clarity around the Federal government's climate-change policies made it extremely difficult to quantify the economics of the project. Ottawa is unable to provide details of its climate-change policy and its mishandling of energy projects, including pipelines, is sure to scare off foreign investment.
The railway blockades by a disgruntled minority of Indigenous people are another threat to the domestic economy. The Trudeau government is trying to negotiate a solution with several unelected "Tribal Chiefs" while ignoring the wishes of the elected Chiefs and most of the Indigenous population. The government’s timid response to the criminal actions of a few has disrupted rail and commuter traffic Canada-wide.
The Bank of Canada surprised markets on January 22 when it flipped to a dovish monetary policy outlook. It could surprise markets again, next week if it cuts the overnight rate. Speculation of such a move exacerbated Canadian dollar selling yesterday and overnight.
Wall Street closed around "flat" yesterday. The Dow Jones Industrial Average and S&P 500 indexes were down less than one half of a percentage point, while the NASDAQ squeaked higher. That wasn’t the case overnight.
Asian equity markets dropped severely, led by a 2.13% plunge in Japan’s Nikkei 225 index. The major European indexes didn’t fare any better. The German DAX index is currently down 2.35% while the UK FTSE 100 has fallen 2.10%. U.S. equity futures point to a drop when Wall Street opens. Fears that the coronavirus outbreak will become a pandemic fueled the selling. Falling equity markets will be another negative for the Canadian dollar.
EUR/USD rallied yesterday and continued to do so overnight, climbing from 1.0880 in Asia to 1.0962 in Toronto, today. Wall Street’s reaction to pandemic fears led to rising expectations that the Federal Reserve will cut interest rates in March, which led to broad U.S. dollar selling.
GBP/USD is the worst performing G-10 major currency overnight, dropping from $1.2945 to $1.2862 before rebounding to $1.02900 in Toronto. U.K. officials said their negotiating mandate with the European Union would not include abiding by EU rules and regulations, which sparked the selloff.
There are a lot of U.S. economic reports today, including Durable Goods Orders, which may distract traders from coronavirus concerns.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
