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Canadian dollar update – Thursday March 19, 2020. Risk-off sentiment and falling oil prices pushes greenback higher.

Canadian dollar update – Thursday March 19, 2020. Risk-off sentiment and falling oil prices pushes greenback higher.
Albert Edwards
by Albert Edwards on March 19, 2020


USD strength continues as equities drop and volatile markets need more cash. The greenback has benefitted from safe-haven status during the past month amid increased fears the virus will spread. President Trump requested a stimulus package worth $1 trillion USD. Treasury Secretary Steven Mnuchin said the unemployment rate could escalate to 20% if they are not proactive. Meanwhile, Vice President Joe Biden won the Democrat party’s presidential nomination. Housing starts declined 1.5% and building permits also dropped by 5.5% last month. Initial jobless claims for last week are expected to increase to 220K today (from 211K previously) and this will be the first sign of the economic impact of the coronavirus. USD strength will continue with stocks and bonds under pressure.

Canadian dollar highlights:

CAD weaker and continues to be defensive due to Covid-10 and declining commodity prices. Crude oil reached a 17-year low after trading below $23.00 per barrel. Prime Minister Trudeau announced a stimulus package worth $82 billion to help businesses and individuals (including employment insurance and child benefits). The government will also extend the deadline for tax filing. In addition, borders will be closed to prevent the pandemic from spreading. As a result of this risk-off environment, the Bank of Canada is expected to continue cutting interest rates. CAD weakness will continue until oil prices rebound and the economy improves.

Euro highlights:

EUR trending weaker as Eurozone banks were provided with $112 billion USD after the Federal Reserve and European Central bank swap operation. The central bank has exhausted all measures regarding easing and hopes the economy will recover from additional stimulus (especially Germany). The bank’s Governing Council said they are “ready to adjust all of its measures, as appropriate”. Meanwhile, Core Inflation rate for February was 1.2% yearly (as expected and previously 1.1%). EUR weakness will continue as uncertainty and panic adds to the negative sentiment.

British pound highlights:

GBP collapsing amid the crisis and higher demand for the world’s reserve currency. Sterling appreciated after the government’s stimulus plans last week; however, this has been slowly reversed due to safe-haven preference. GBP weakness will continue after U.K. banks took $15.5 billion USD from the central bank’s 7 and 84-day funding operations.