March came in like a lion, and it is going out the same way. The COVID-19 pandemic has led to lockdowns in the major population centres in Europe, the U.S., and Canada. There are no indications that lockdown restrictions will ease any time soon. The Premier of Ontario warned enforcement measures might increase if people fail to adhere to social distancing recommendations.
The lockdowns have taken a toll on crude oil prices. Oil demand has crashed as people stop driving, while at the same time, Russia and members of the Organization of the Petroleum Exporting Countries are pumping crude like there is no tomorrow. Saudi Arabia has not stepped back from plans to increase crude output in April and oil producers are running out of storage. Canada’s Western Canada Select (WCS) set a record low price on Monday when it hit $3.82/barrel.
The drop in oil prices, and rising the bankruptcies of U.S. Shale producing companies caught President Trump’s attention. He called Russia President Vladimir Putin to discuss ways to support prices. There are reports that if Russia acts to support prices, it will be because Trump agreed to revoke some of the sanction the U.S. has placed on Russia. Oil traders liked what they heard, and WTI jumped from $19.27/barrel on Monday afternoon to $21.70/b today.
The oil price rally didn’t do anything to support the Canadian dollar. USD/CAD has climbed steadily since bottoming out last Friday at $1.3920 and traded at $1.4263 this morning. Prices are supported by widespread demand for U.S. dollars due to month-end portfolio rebalancing requirements. The 11.1% month-to-date plunge in the S&P 500 index suggests that the managers need to sell U.S. dollars to bring their hedges back into line with their benchmarks.
The re-balancing flows drove the U.S. dollar higher against the G-10 major currencies overnight.
The NZD/USD and AUD.USD were the hardest hit, losing 0.94% and 0.72%, between Monday’s Toronto close and today’s open.
Those antipodean currencies rallied for most of the Asia session after China reported better than expected data. The Manufacturing Purchasing Managers Index surged to 52 from 35.7 in February, while Non-Manufacturing PMI jumped to 52.3 from 29.6. Also, Wuhan which is ground zero for the coronavirus pandemic, said it didn’t fin any new COVID-19 cases for a week.
Unfortunately, the U.S. has picked up the slack as the death toll from the virus and new cases continue to rise.
Canadian Gross Domestic Product data is due today. It is for January and meaningless after the economic fallout from the coronavirus. It will be ignored.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
