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Canadian dollar update – Thursday March 5, 2020. Greenback spikes after BoC also lowers policy rate by 50 basis points.

Canadian dollar update – Thursday March 5, 2020. Greenback spikes after BoC also lowers policy rate by 50 basis points.
Albert Edwards
by Albert Edwards on March 05, 2020


U.S. dollar highlights:

USD stronger and trending higher as markets continue flight to safety and risk-off sentiment dominates. Support for the greenback was also due to Joe Biden’s strong performance on Super Tuesday. The Democratic party election is now between Bernie Sanders and Biden. After the Federal Reserve eased rates on Tuesday, Chairman Powell said the cuts won’t address the lower supply due to the Covid-19 outbreak. Markets responded by selling off USD and the 10-year treasury yield dropped below 1% (a record low). Markets are also concerned the coronavirus will slow the economy and may cause a recession. Initial Jobless claims for last week expecting 215K today and the unemployment rate for February is available tomorrow (previously 3.6% in January).

Canadian dollar highlights:

CAD weaker and tumbling after the central bank cut interest rates by 50 basis points (for the first time since March 2009). Markets already priced in a 25bps cut, however, Governor Poloz followed the Fed amid the “coronavirus is a material negative shock to Canadian and global outlooks”. The forecast for Q1 is weaker as lower demand for oil caused prices to drop. The Bank of Canada was the only central bank to hold rates for the last sixteen months and has the highest policy rate among advanced economies. Q4 growth in 2019 was flat and rail blockades will also have an impact on Q1 GDP, so CAD remains defensive. Governor Poloz will deliver his Economic Progress Report today in his last press conference. The unemployment rate for February is also available tomorrow (previously 5.5% in January).

Euro highlights:

EUR steady following aggressive monetary policy by the Fed and Bank of Canada. To counter the effects of the Covid-19 outbreak, the European Central bank has urged additional government spending. President Lagarde may also expand the size of monthly asset purchases since the current interest rate is in negative territory. Meanwhile, Italy is considering closing schools and universities until the middle of this month to avoid the virus spreading and this is weighing on the EUR. GDP growth rate for Q4 available next Tuesday and the interest rate decision is next Thursday March 12.

British pound highlights:

GBP firm after incoming Bank of England Governor Andrew Bailey said they are ready to act but is limited due to the outbreak. Bailey also said more evidence is needed but will respond quickly if warranted. The central bank will also work with the Treasury as more spending is forecasted from the new finance minister. Brexit trade uncertainty continues weighing on GBP. Mark Carney delivers his last speech today.