The Canadian dollar was on its back-foot for the entire overnight session, giving back nearly all of yesterday’s post-11:00 a.m. fixing gains. It has been a wild 24 hours. The steep losses in the major U.S. equity indexes in March, sparked large-scale U.S. dollar buying, as portfolio managers re-balanced their books. USD/CAD climbed steadily, rising from $1.4165 to $1.4340 by 11:00 am EDT (That time equates to the 4:00 London fixing time when benchmark FX rates are posted). Prices plunged immediately afterwards, finally finding a bottom at $1.4015, just before the session closed.
Asia traders were not impressed with Wall Street’s quarter-end performance. The major U.S. equity indexes closed with losses led by a 1.84% drop in the Dow Jones Industrial Average. Asia equity traders followed the American lead and their major indexes started Q2 with hefty losses, led by a 4.5% drop in Japan’s Nikkei 225 index.
Japan got more bad news when the Tankan report for Q1 was released The Large Manufacturing Index dropped to -8, a seven-year low.
USDJPY see-sawed in a 107.27-107.93 range and is trading in Toronto in the middle of that band.
Very low U.S. Treasury yields cap price gains.
The U.S. dollar was in demand in Asia, which knocked AUD/USD and NZD/USD lower. The Reserve Bank of Australia minutes did not have any impact on trading but did note that officials expect a sharp economic rebound when the coronavirus is contained.
Europe is in the throes of the COVID-19 crisis, with France, Spain, Russia, and the U.K. recording their highest daily death totals, yesterday.
Global deaths are estimated to be 42,300. The impact of the virus was reflected in German, UK and Eurozone Manufacturing PMI data which were weaker than forecast, but expected.
EUR/USD dropped to $1.0918 from $1.1038 and is trading in Toronto at $1.0930, with a bearish bias.
GBP/USD dropped in Asia, falling from $1.2437 to $1.2331. It attempted to recoup those losses in Europe, but the rally ran out of steam at $1.2395.
The Canadian dollar and other FX markets are reeling from a severe drop in liquidity.
The major banks have chopped risk limits as many desks are understaffed, while trading losses from equity and bond market moves has curtailed FX risk from fund managers. Aggressive intraday program trading has exacerbated FX volatility.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
