The Canadian dollar started the Toronto session on a firm footing after rising steadily overnight.
FX traders sold US dollars against the major G-10 currencies as positive risk sentiment rippled across asset classes.
The positive sentiment is a direct result of the recent fiscal and monetary actions of the G-7.
The United States is in the process of passing the most extensive economic stimulus package in history, spending upwards of $2.0 trillion. Close to 150 million Americans could receive government cheques while businesses have access to hundreds of billions in loan programs.
The cash-strapped Canadian government answered the bell, announcing an $82-billion stimulus program.
The European Central Bank fired a €750-billion quantitative easing bazooka, while the governments of Australia and New Zealand announced stimulus packages of their own.
The cumulative effect of the announcements fueled a rebound in global stock markets and the unwinding of U.S. dollar safe-haven trades. The greenback has been sliding lower since Monday and continued to do so overnight.
The effect of the COVID-19 outbreak on the economy will be underscored this morning with the release of the weekly US jobless claims data. The weekly result has been in the 210,000-240,000 area for the past year.
Today’s report is expected to show a steep rise in claims with the consensus forecast at one million. The results should not surprise anyone, but the weekly numbers will become a barometer for the health of the U.S. economy.
Global equity markets ignored yesterday’s Wall Street action. The major Asia indexes closed with losses. The Nikkei 225 index dropped 4.5% while European indexes are trading in negative territory ahead of the U.S. jobless claims data.
EUR/USD continued this week’s rally and climbed to $1.0978 before slipping to $1.0960 in early Toronto trading. The improved tone to risk, broad U.S. dollar weakness and recent European Central Bank actions contributed to the single currency’s rally. EUR/USD got an added boost from speculation that the E.U. was entertaining issuing a "Coronabond."
GBP/USD rallied ahead of this mornings Bank of England monetary policy meeting. The BoE left monetary policy unchanged, as its March 19 actions, pre-empted any the need for new initiatives today.
USD/JPY fell because of general U.S. dollar weakness and the drop in U.S. treasury yields and ahead of Friday’s expected stimulus announcement by the Japanese government.
It is far too early to suggest financial markets are returning to normal, especially since many of the world’s major population centres are in some sort of lockdown. FX liquidity continues to be poor, which helps to explain the wide trading ranges in the Canadian dollar, as well as the other majors.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
