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Canadian dollar update – Tuesday March 17, 2020. Fed rate cut fails to calm markets as stocks plunge.

Canadian dollar update – Tuesday March 17, 2020. Fed rate cut fails to calm markets as stocks plunge.
Albert Edwards
by Albert Edwards on March 17, 2020


U.S. dollar highlights:

USD stronger after the S&P reached level-one circuit breaker with a 7% loss and halted trading for 15 minutes. Treasury yields continue dropping further and the equity market is suffering. The Federal Reserve announced another emergency rate cut by 100 basis points Sunday evening and launched a $700 billion USD quantitative easing program. The goal is to combat the coronavirus by injecting liquidity into markets. The Fed will meet on Wednesday and are not able to ease rates further to support the economy; however, they may add more stimulus. All eyes are now on the Federal government regarding more fiscal support. In addition, China’s slowdown for January and February was worse than expected and this caused more selloffs in the Asia Pacific index.

Canadian dollar highlights:

CAD weaker and under more pressure as crude oil prices dropped to $28.00 per barrel. OPEC cancelled their scheduled meeting this week and the government announced additional fiscal measures last Friday. The Bank of Canada is expected to have another emergency meeting and cut interest rates again (like the Federal Reserve). Meanwhile, Prime Minister Justin Trudeau addressed the nation and said non-citizens and those who aren’t permanent residents will be denied entry. Trudeau also announced $10 billion more to help businesses and vulnerable families; however, he also encouraged all returning Canadians to self-isolate for 14 days.

Euro highlights:

EUR defensive as risk-off sentiment continues to dominate markets. After the European Central Bank’s stimulus programs last week, all eyes are now on the Eurogroup Finance Minister Meeting and a G7 call on the coronavirus. Meanwhile, the German ZEW Economic Sentiment for March is expected to drop due to the Covid-19 outbreak. In Italy, only essential services are allowed as people travelling and moving are limited. Airlines have stopped, cultural events cancelled, and Germany may be the next country to quarantine.

British pound highlights:

GBP under pressure after the “herd-immunity” coronavirus measures were questioned. The U.K. wants to isolate people over 70 years old but let Covid-19 spread. If most of the population is infected and become immune, this will provide protection for people who are not immune. In contrast, other countries are using social distancing, closing schools and public gatherings, and restricting movement. The government’s stimulus package announced last week will eventually support GBP. Meanwhile, Brexit trade talks have been suspended.