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Canadian dollar update – Wednesday February 19, 2020. Risk aversion dominates to support greenback while oil prices drop.

Canadian dollar update – Wednesday February 19, 2020. Risk aversion dominates to support greenback while oil prices drop.
Albert Edwards
by Albert Edwards on February 19, 2020


U.S. dollar highlights:

USD firm after Apple warned that sales profits will be affected by the outbreak in China due to production interruptions and forcing to close many stores. Due to safe-haven status, equities dropped as fears increased that the virus will spread. China cut its lending rates to withstand the economic effect of the virus. Chinese President Xi said the economic impact of the coronavirus will be temporary and China will still be able to meet 2020 targets (despite the slowdown). Meanwhile, the latest FOMC meeting minutes will be available today and markets are paying close attention to any hints of monetary policy. USD remains supported by increased risk appetite on global growth concerns.

Canadian dollar highlights:

CAD weaker and defensive after softer oil prices (mainly due to the coronavirus causing negative energy demand and concerns of oversupply). Russia is considering more supply cuts to equal other OPEC producers and this will support CAD. Meanwhile, Prime Minister Justin Trudeau will try to negotiate with protesters disrupting rail transportation. Manufacturing sales for December dropped 0.7% (versus 0.5% gain expected). Sales declined mostly in the motor vehicles assembly due to the shutdown of the General Motors Oshawa plant. Inflation rate for December expecting 0.2% gain monthly today. The Bank of Canada’s next policy decision is in two weeks (March 4).

Euro highlights:

EUR weaker and vulnerable after Germany’s ZEW survey was worse than expected (due to the negative impact of the epidemic). Eurozone finance ministers recommended fiscal stimulus to deal with the slowdown. Renewed risk aversion will keep EUR under pressure while markets prefer safe-haven currencies (USD, JPY, CHF). Inflation rate for January expecting 1.4% gain yearly on Friday.

British pound highlights:

GBP recovering after new Chancellor Rishi Sunak confirmed the U.K. budget will be ready on March 11. Markets have responded positively after Prime Minister Johnson reshuffled his cabinet last week. Employment increased in December, but weekly earnings dropped. The labour market has been resilient amid Brexit and election concerns and this may reduce the chances the central bank cuts interest rates next month. Consumer prices for January expecting 1.6% increase yearly today.