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Canadian dollar update – Thursday March 12, 2020. BoE slashes rates 50 basis points while Covid-19 outbreak declared a pandemic.

Canadian dollar update – Thursday March 12, 2020. BoE slashes rates 50 basis points while Covid-19 outbreak declared a pandemic.
Albert Edwards
by Albert Edwards on March 12, 2020


U.S. dollar highlights:

USD firm after the World Health Organization declared the coronavirus a pandemic. The virus has infected more than 115K people worldwide (so far). Many museums, exhibitions, sporting events and shows have been cancelled. President Trump wants a major tax reduction and short-term paid sick-leave as the government plans significant fiscal stimulus to alleviate the impact. Stocks continue declining and treasuries remain near record lows. The greenback started to retreat until the outbreak was declared a pandemic. Meanwhile, Inflation for February was higher than expected at 2.3% yearly (versus 2.2% forecasted). Risk aversion returns and will dominate markets until the virus recedes.

Canadian dollar highlights:

CAD weaker and tumbling as crude oil prices remain low and the forecast for demand drops again. Prime Minister Trudeau announced the government’s fiscal response to the outbreak with $1.1 billion in new financial measures (allocated to the healthcare industry). Trudeau said he is also prepared to use federal financing agencies and spend more if needed. Following Russia’s unwillingness to cut production, crude oil prices remain under pressure as Saudi Arabia plans to flood the markets with more cheap oil. OPEC also reduced global oil demand forecasts for 2020 (due to the pandemic). CAD has weakened over 7% since the start of 2020.

Euro highlights:

EUR stable, but defensive ahead of the European Central Bank’s interest rate decision today. President Christine Lagarde is limited with tools amid the virus outbreak. They are already in negative interest rates and this is affecting banks. The central bank may add liquidity with €20 billion of bonds monthly; however, the Quantitative Easing program already reached €80 billion. As a result, inflation was only 1% growth in 2019 (below the target of 2%). A 10bps rate cut is already priced in and markets wait for further action as the EUR is expected to drop.

British pound highlights:

GBP stable and recovering after the Bank of England cut interest rates by 50 basis points (same as the Federal Reserve and Bank of Canada). The government also announced £1.2 million for small and medium sized businesses. Additional spending was part of Prime Minister Boris Johnson’s promises and to help alleviate the virus outbreak.