The Canadian dollar fell off a cliff overnight. It lost nearly 2.5% after oil prices collapsed. West Texas Intermediate (WTI) oil prices plunged over 30% after Saudi Arabia triggered an oil price war. Asia traders panicked, driving USD/CAD from a closing level of $1.3425 on Friday to a peak of $1.3757 in Asia. The move was exacerbated due to stop-loss buying when prices blasted above $1.3550 and $1.3665.
Saudi Arabian officials were miffed when Russia refused to agree to an additional 1.5 million barrels per day in crude production cuts. The Saudi’s were hoping to put a floor under oil prices that were under-pressure from falling global demand and forecasts for a prolonged global economic growth slowdown. Russia thought cutting production would not benefit prices but support American shale producers. The Saudi’s reacted by starting a price war to bolster their finances by increasing its market share.
Freefalling oil prices were just one of the factors that spooked global markets overnight. Coronavirus fears accelerated. Italy announced that it quarantined over 16 million people in the northern area of the country, which includes Milan and Venice. Major governments placed travel restrictions with Iran suspending flights to Europe and the United States. COVID-19 cases have tripled in a week with over 110,000 infections worldwide.
Global stock indexes collapsed. Japan’s Nikkei 225 fell 5.07%. The U.K. FTSE 100 and Germany’s DAX indexes are currently down over 6.0%, and U.S. equity futures suggest Wall Street is poised to open with significant losses.
The U.S. opened in Toronto with steep losses against the Japanese yen, Euro and British pound.
EUR/USD climbed to $1.1490 from Friday’s Toronto close of $1.1289. The gains were powered by rising expectations that the Fed will slash U.S. interest rates again. The CME Fedwatch tool predicts that there is a 77% chance the Fed cuts rates by 0.50% on March 18. On Friday, those odds were zero. Many analysts believe a rate cut could happen as soon as today. The sharply narrowing interest rate differentials between the U.S. and eurozone are underpinning EUR/USD.
The European Central Bank (ECB) has not reacted to the COVID-19 crisis. Analysts suggest that eurozone rates, which are already negative, are too low for a rate cut to be beneficial.
GBP/USD soared alongside EUR/USD, but it gave back most of those gains and is trading just above Friday’s close. GBP/USD climbed from $1.3048 to $1.3199 before sellers emerged because of UK coronavirus issues and fears of a "hard" exit from EU/UK trade talks.
Domestic and U.S. economic data releases will be ignored as traders focus on the stock market and COVID-19 headlines.
