Politicians in Canada and the U.S. played their versions of "Let's make a Deal" overnight, but instead of giving away trips and appliances, they gave away money. Members of Parliament worked late into the evening before agreeing to the $82-billion stimulus package announced last week. All the political parties were on board with the major spending plans.
The stumbling block occurred when the minority Liberal government attempted to give themselves broad tax and spend powers, that at the same time, dispensed with the necessity of obtaining parliamentary approval. Opposition MPs were appalled at the prospect of a writing a blank cheque to a government whose leaders believes "budgets balance themselves."
News of the spending agreement did not translate into Canadian dollar gains. That's because the details were already known. Also, the dollar size of the stimulus is rather meager when compared to the programs announced by Australia, New Zealand, the U.K., E.U. and the U.S.
The Canadian dollar slid steadily overnight, alongside the rest of the major G-10 currencies, in part because of positive risk sentiment following the 11.3% rise in the Dow Jones Industrial Average, on Tuesday. That sentiment translated into broad U.S. dollar selling which became more pronounced when the US Senate announced an agreement on the proposed $2-trillion stimulus package to combat the impact on the economy from the coronavirus outbreak.
The news fueled gains in Asia and European stock markets and boosted oil prices. West Texas Intermediate rose 8.7% supported by a 1.2-million-barrel drawdown in U.S. crude inventories as of March 20. The rally ended abruptly during the European session and the 8.7% gain, disappeared.
Prices are only marginally higher in early Toronto trading and that price action undermined the Canadian dollar which lost 0.50% since Toronto opened. Traders are concerned that the spending package will not boost demand due to numerous cities in lockdown to prevent the spread of COVID-19.
In Europe, EUR/USD rallied to $1.0845 from $1.0760, on a wave of positive risk sentiment following the massive stimulus packages announced by the G-7 Finance Minister and central bank governors. The European Central Bank's nearly €1-trillion spending package announced last week, combined with the $2.0-trillion U.S. announcement, injected a healthy dose of positive risk sentiment into financial markets.
Today's U.S. data which includes Durable Goods Orders will be a non-factor for traders as the results precede the coronavirus crisis.
USD/CAD is in minor uptrend above $1.4290, with a break above $1.4430, shifting focus to $1.4550 resistance area. Suggested range for today: $1.4350-$1.4450
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
