The Canadian dollar is yo-yoing. It sank steadily yesterday and is well on its way to fully reversing that move this morning. Traders are seemingly oblivious to domestic economic data, or negative investment news. Norway’s $1.0-trillion investment fund has been banned from investing in four Canadian oil companies, Canadian Natural Resources, Cenovus, Suncor and Imperial Oil because they produce excessive greenhouse gas emissions. Cynics would suggest the total of those emissions would fly in the face of the emissions emanating from the Norwegian government.
U.S. President Trump stirred the pot yesterday, resulting in a nasty selloff on Wall Street, which carried over into Asia markets. Trump tweeted "As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!"
Policymakers on the Federal Open Market Committee (FOMC) turned a deaf ear. Chicago Federal Reserve President Charles Evans said he thought rates would stay near zero for quite some time but didn’t expect to resort to negative rates. St Louis Fed President James Bullard seemed to agree. He said negative rates would be problematic.
Traders are expecting Fed Chair Jerome Powell to chime in on the debate when he speaks at the Peterson Institute for International Economics, this morning.
Wall Street slid heavily in the closing hours of yesterday’s session with the Dow Jones Industrial Average (DJIA) losing 1.89%. The major Asia indices followed Wall Street’s lead, as did European bourses, so far today. However, S&P futures are in positive territory ahead of the Powell speech.
The Reserve Bank of New Zealand caught traders off-guard when they opened the door to the possibility of negative interest rates. The RBNZ nearly doubled its bond purchase program, increasing purchases to $60 billion from $33 billion, but the left interest rates unchanged. They said, "The global economic disruption caused by the COVID-19 pandemic is expected to persist and lead to lower economic growth, employment, and inflation both in New Zealand and abroad." That wasn’t all that surprising but the comment that "We expect to see retail interest rates decline further…" spooked traders. NZD/USD plunged from 0.6090 to 0.6000 after the statement. Prices have recouped over half of those losses in early Toronto trading.
Today’s U.S. Producer Price Index was weaker than expected, dropping 1.3% m/m in April compared to forecasts for a -0.5% decline.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
