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Canadian dollar update – Friday March 6, 2020. EUR soars as markets expect further easing from the Fed this month.

Canadian dollar update – Friday March 6, 2020. EUR soars as markets expect further easing from the Fed this month.
Albert Edwards
by Albert Edwards on March 06, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stronger, but defensive as the 10-year treasury yields continue plummeting to record lows. The jobs report for last month will be important to determine how the coronavirus has affected the economy. There is potential for more sell offs, less risky assets and flight to safety if the labour market starts slowing. Markets are also preparing for the outbreak to spread and this is supporting USD. After Federal Reserve Chairman Jerome Powell surprised the markets with am emergency rate cut, another 50bps cut is now being priced in for the March 18 FOMC meeting. Unemployment rate for February expecting 3.6% today.

Canadian dollar highlights:

CAD weaker and under pressure after oil prices tumble. OPEC agreed to cut production by 1 million barrels per day only if Russia reduces production by 500K barrels daily. Russia confirmed that supply cuts are necessary to lower crude oil prices, however, they disagree with the amount and this is weighing on CAD. After a 50 basis points rate cut on Wednesday, the central bank said they will adjust rates further to support economic growth and keep inflation on target. Markets are also starting to price in another cut for next month. Governor Poloz said they were considering cuts even without the virus. Unemployment rate for February expecting 5.6% today.

Euro highlights:

EUR stronger as the European Central Bank may increase the size of its monthly asset purchases. Markets also expect the deposit rate to lower by 10bps (compared to 50bps from the Fed and BoC). European governments are also expected to outline fiscal stimulus plans to combat the pandemic. EUR strength will continue due to risk-off sentiment. The European Central Bank meets next week.

British pound highlights:

GBP firm as markets have only priced in one 25bps rate cut for this year. Due to the risks of a no trade Brexit deal, the Bank of England will be cautious with monetary policy to combat Covid-19. Trade talks with the European Union were positive during the first week and Prime Minister Johnson still insists on a tentative deal by June. The government will announce additional spending next Wednesday.