The Canadian dollar see-sawed in a reasonably narrow trading range overnight. USD/CAD drifted between $1.3321 and $1.3367 as traders focused on global stock market price action. The G-7 are reportedly preparing a response to the coronavirus outbreak. Comments by various central bank chiefs, including the U.S. Federal Reserve Chair Jerome Powell and Bank of Japan’s Haruhiko Kuroda, fueled speculation of a coordinated G-7 interest rate cut.
Their comments sparked a massive rally on Wall Street. The Dow Jones Industrial Average (DJIA) jumped 5.1%, followed by the S&P 500, up 4.6% and NASDAQ, enjoying 4.5% gains.
However, a Reuters article disputed that notion. It claimed a "source" said the draft communique did not include a specific call for new government or coordinated interest rate cuts.
The Reserve Bank of Australia lowered the Overnight Cash Rate (OCR) to 0.5% from 0.75%. The monetary policy statement blamed the coronavirus outbreak. They said "The coronavirus outbreak overseas is having a significant effect on the Australian economy at present, particularly in the education and travel sectors. The uncertainty that it is creating is also likely to affect domestic spending. As a result, GDP growth in the March quarter is likely to be noticeably weaker than earlier expected."
U.S. President Trump liked the RBA action. He tweeted: "Australia’s Central Bank cut interest rates and stated it will most likely further ease in order to make up for China’s Coronavirus situation and slowdown. They reduced to 0.5%, a record low. Other countries are doing the same thing, if not more so. Our Federal Reserve has us.... ...paying higher rates than many others, when we should be paying less. Tough on our exporters and puts the USA at a competitive disadvantage. Must be the other way around. Should ease and cut rate big. Jerome Powell led Federal Reserve has called it wrong from day one. Sad!"
The U.S. dollar was on the defensive overnight. The prospect of coordinated G-7 action to support global growth led to demand for the so-called "riskier assets." AUD/USD rallied despite the RBA actions and NZDUSD went along for the ride.
The Canadian dollar and the euro were the only currencies to have lost ground against the greenback by today’s Toronto open. The loonie underperformance is due to the heightened expectations that the Bank of Canada will cut interest rates tomorrow. The Indigenous blockade of railways and concerns about the coronavirus impact on domestic growth may force the BoC’s hand and lead to a 0.25% rate cut.
There are not any actionable U.S. or Canadian economic reports on tap today. Traders will continue to track equity price action and await news from the G-7
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
