The Canadian dollar plunged deeper overnight. It was not alone. U.S. President Trump addressed the Nation on Wednesday night, announcing a travel ban from Europe to the U.S.
He said "The European Union failed to take the same precautions and restrict travel from China and other hotspots. As a result, a large number of new clusters in the United States were seeded by travelers from Europe. To keep new cases from entering our shores, we will be suspending all travel from Europe to the United States for the next 30 days. The new rules will go into effect Friday at midnight."
The President also announced some economic stimulus measures which included instructing the Small Business Administration to provide capital to firms affected by the coronavirus while asking Congress for an additional $50 billion in funding. He also said Treasury would defer tax payments, without interest or penalties for some businesses and individuals.
Those actions look aggressive and decisive compared to the Canadian government response. Prime Minister Trudeau announced a $1.1-billion economic package, which, compared to the U.K.’s £30.0 billion, or the American’s $200-billion initiatives, is insignificant.
The World Health Organization declared the coronavirus outbreak a pandemic, which ramped up the fear quotient in markets. Wall Street suffered heavily, yesterday, closing down over 1,100 points. It could be worse today. U.S. stock futures hit "limit-down", which is a circuit breaker enacted during the 2008 financial crisis to inject a bit of calm into panicked markets if prices fall 5.0%.
Asia equity markets suffered horribly, led by a 7.3% plunge in Australia’s ASX 200 index. It didn’t get better in Europe where the major European bourses are close to 6.0% lower.
The Federal Reserve and the Bank of England jumped the gun, with both central banks slashing interest rates by 0.50% in emergency monetary policy meetings. The European Central Bank did not. They were content to watch markets unravel until today’s scheduled policy meeting. EUR/USD dropped from $1.1333 to $1.1213 on the back of falling stock prices, broad U.S. dollar strength, and expectations of dovish monetary policy action by the European Central Bank today.
GBP/USD didn’t get much traction from yesterday’s U.K. budget which announced £12.0 billion to combat the coronavirus outbreak. Prices continued to be weighed down by uncertainty around the E.U./U.K. trade talks, and yesterday’s Bank of England rate cut.
Oil prices continue to slide. Rising U.S. crude inventories, and the ongoing Saudi Arabia/Russia price war, combined with expectations for sharply weaker global growth, have driven prices to levels last seen in January 2016.
The drop in oil prices and widespread demand for U.S. dollars has driven the Canadian dollar to 2017 lows.
Canadian and U.S. economic reports are not trading factors in the coronavirus environment.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
