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Canadian dollar update – Friday February 21, 2020. Risk-off returns as virus cases decrease and global growth concerns ease.

Canadian dollar update – Friday February 21, 2020. Risk-off returns as virus cases decrease and global growth concerns ease.
Albert Edwards
by Albert Edwards on February 21, 2020


U.S. dollar highlights:

USD stronger amid safe haven demand and other G-10 currencies are weaker (CAD, JPY, EUR, GBP). Japan is concerned about a technical recession and causing safe-haven JPY to drop to a 10-month low. Meanwhile, the Chinese central bank said they will provide support to combat the negative effects of the coronavirus and the government encouraged a return to normal economic conditions. China also reported fewer cases, however, this was mainly due to another change in how they report data. After the FOMC meeting minutes were released on Wednesday, policymakers said the economy is performing as expected. The Fed gave no indication on monetary policy and markets interpreted this as remaining stable for the year. USD remains affected by the coronavirus and global growth concerns.

Canadian dollar highlights:

CAD weaker and still defensive, even though oil prices increased. Crude oil prices continue to be negatively affected by the outbreak. Venezuela is struggling to maintain supply, and this may increase demand. Meanwhile, rail blockades continue to stop rail traffic across Canada and markets are monitoring how this will affect the economy. Prime Minister Trudeau is under pressure to resolve the matter; however, the Wet’suwet’en nation said they will only talk on their land and after the RCMP leave their territory. December retail sales expecting to improve 0.1% monthly today.

Euro highlights:

EUR weaker and under pressure after the German GFK Consumer Confidence Survey for Match was 9.8 (as expected, but previously 9.9). Meanwhile, the Producer Price Index rose 0.8% monthly (versus 0.2% expected) and 0.2% yearly. EUR has dropped over 3% this year due to deteriorating economic conditions, trade uncertainty and increased virus fears. All eyes on the January Inflation Rate report today (expecting 1.1% Core annually).

British pound highlights:

GBP weaker as markets have currently priced in a 36% chance of a rate cut next month. The Bank of England plans to wait and assess the economy before cutting interest rates. Meanwhile, January retail sales increased 0.9% monthly and 0.8% yearly. Household spending is improving after last year’s election and inflation surged to a six-month high last month; however, fears of a no trade Brexit deal continue weighing on GBP. Markets will focus on Britain’s trade talks with the European Union and how the government plans to increase spending.