The Canadian dollar is under stress. So are all the major G-10 currencies, except for the Japanese yen, after U.S. Federal Reserve Chair Jerome Powell reiterated the Fed would not cut interest rates to negative. Yesterday, Powell delivered a speech titled "Current Economic Issues." He said the U.S. government spent $2.9 trillion, which is about 14% of Gross Domestic Product, and pointed out that it was the "fastest and largest response to any postwar downturn." He reiterated the Fed's monetary policy response, and then reminded people that "the Fed has lending powers, not spending powers." He added that to the economic recovery gain momentum, "additional fiscal support" would be worth it.”
Wall Street appeared to take the news that negative rates weren’t on the agenda rather badly. Investors sold stocks, and by the end of the day, the Dow Jones Industrial Average (DJIA) lost 516 points, while the S&P 500 index shed 1.75%. Asia and European equity indexes followed the U.S. lead. Japan’s Nikkei 225 dropped 1.74% while European bourses are deep in the red, led by the U.K. FTSE, which has lost 2.82%, as of 8:00 a.m. EDT.
EUR/USD is consolidating overnight losses just above its session low. Prices are weighed down by safe-haven demand for U.S. dollars, and additional weak German economic data.
GBP/USD is at the bottom of its overnight $1.2182-$1.2241 band with Deputy Bank of England Governor Ben Broadbent’s musing above negative interest rates two days ago, still weighing on prices. GBP/USD technicals are bearish and looking for further losses to $1.1790 on a break of $1.2140.
USD/JPY sank due to safe-haven demand for JPY and because of falling U.S. Treasury yields. Bank of Japan Governor Kuroda said because of the pandemic, it would take some time for inflation to reach the 2.0% BoJ target.
AUD/USD and NZD/USD fell due to the shift into negative risk sentiment. Weaker than expected Australian employment data added to the AUD/USD selling pressure.
Oil prices extended yesterday’s rally which was triggered by better than expected the weekly Energy Information Agency (EIA) report which showed U.S. crude inventories declining in the week ending May 8. The news got better overnight when the International Energy Agency (IEA) released its Monthly Oil Market Report. They noted that "Global oil supply is set to fall by a spectacular 12 mb/d in May to a nine-year low of 88 mb/d, as the OPEC+ agreement takes effect and production declines elsewhere."
The Canadian dollar sank but was still the best performing major G-10 currency overnight. USD/CAD climbed from $1.4070 to $1.4014, however, a surge in West Texas Intermediate (WTI) oil prices acted as a drag on USD/CAD gains.
The 2.9-million-job increase in U.S. weekly jobless claims was a tad worse than forecast.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
