The Canadian dollar lost more ground overnight, dropping to a low last seen in June 2019. It wasn’t alone. The Australian and New Zealand dollars dropped as well, as a host of negative news weighed on the commodity currency bloc.
Wall Street’s meltdown yesterday shaved 4.2% off the Dow Jones Industrial Average and the S&P 500 index and unnerved global equity markets. Many of the top Asian equity indexes closed with losses of 3.0% or more and as of 8:00 a.m. EST in Toronto, the European bourses are showing similar losses. US equity futures are in negative territory, suggesting another wild day on Wall Street.
The coronavirus (COVID-19) outbreak is coming closer and closer to a pandemic. Confirmed cases rose to 2,337 in South Korea, Japan closed schools for a month and declared a state of emergency on the island of Hokkaido.
More infections were reported in Germany and France, while New Zealand, Lithuania, Nigeria, and Belarus reported their first confirmed cases.
Tempers flared in Turkey after 33 of its soldiers were killed in attacks in Syria. The Turks claim they were victims of an airstrike while Russia says they were hit by Syrian artillery, aiming at a Rebel offensive.
Turkey has demanded a NATO meeting and to help ensure they get their way; they have reopened the refugee route, allowing migrants to pass unopposed through Turkey and into Greece.
Month-end portfolio re-balancing flows were extremely disruptive to FX markets. The S&P 500 dropped 7.7% in February, which suggests global portfolio managers need to buy US dollars to maintain their benchmark hedge ratios.
The Canadian dollar has a litany of woes, driving it lower. The odds that the Bank of Canada (BoC) cuts interest rates next week are about 50/50. Analysts believe the increased risk of a more prolonged global economic growth slowdown due to supply chain disruptions from COVID-19, combined with weak domestic growth, low oil prices, and the negative impact from the railway blockades, will force the BoC into an "insurance" cut.
The more than 30% drop in West Texas Intermediate oil prices since January has undermined the Canadian dollar. Saudi Arabia is advocating the Organization of the Petroleum Exporting Countries and Russia cut crude production by another one million barrels per day, but so far, the talk has not supported prices.
Fears of a coronavirus pandemic and another stock market meltdown will overshadow U.S. and Canadian economic data today.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
