The Canadian dollar soared then sank when the Federal Open Market Committee statement was released yesterday afternoon. USD/CAD dropped to $1.3318, then shot up to $1.3412, where it ended the day. Traders, expecting a tame statement, were taken aback at how dovish the Committee seemed.
The critical paragraph in the statement read: "The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals."
However, it wasn’t until they studied the dot-plot graph that traders realized the target rate would remain in place until 2022. Sentiment shifted to negative because perhaps the economy was in far worse shape than initially thought. Then came more bad news on the COVID-19 front. CNN reported that there was an increase in the number of coronavirus patients requiring hospitalization since the Memorial Day weekend.
Asia traders didn’t like what they heard, and they hurried to buy safe-haven currencies. The Japanese yen and Swiss franc rallied, and the Canadian, Australian, and New Zealand dollars were hammered.
AUD/USD plunged to $0.6905 in early Toronto trading after peaking yesterday at 0.7055 around the Fed meeting. NZDUSD followed in the footsteps of its antipodean cousins and fell from $0.6575 to $0.6465.
Canadian dollar sellers were emboldened when crude oil prices dropped.
West Texas Intermediate shrugged off the U.S. Energy Information Administration (EIA) report of a 5.7-million-barrel rise in crude inventories.
However, the Fed statement renewed fears of a global economic slowdown and prices plunged from $39.75/b to $36.85/b in Toronto today.
USD/JPY sank under the weight of safe-haven demand, with this week’s steep drop in U.S. Treasury yields exacerbating losses.
GBPUSD plunged from its Fed peak of $1.2812 to $1.2642 in Toronto trading. The currency was weighed down by the impasse in EU/UK trade talks and a report from Morgan Stanley warning that the Bank of England may cut interest rates to negative.
Today’s U.S. weekly jobless claims report showed a 1.5 million rise which was as expected and ignored by traders. There isn’t any Canadian data available.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
