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Canadian dollar update – Tuesday February 25, 2020. Stocks fall sharply as Covid-19 cases surge and safe havens benefit.

Canadian dollar update – Tuesday February 25, 2020. Stocks fall sharply as Covid-19 cases surge and safe havens benefit.
Albert Edwards
by Albert Edwards on February 25, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD stronger as equities drop, and safe havens gain. The greenback advanced because of new cases reported outside of China. The outbreak has now affected Italy, South Korea and Iran. Global growth concerns due to the virus spreading remains a major theme and markets are reacting with fear. USD was defensive last week after soft manufacturing data, low yields and weaker stocks; however, increased risk aversion is supporting USD this week. Gold also soared after stock-market sell-offs and this may also encourage the Federal Reserve to cut rates next month. Markets will focus this week on Thursday’s GDP report for Q4.

Canadian dollar highlights:

CAD weaker and following market sentiment as oil prices drop on more fears of a global pandemic. Crude oil prices have dropped over 4% during the past week and rail protests will keep CAD under pressure. Some companies have increased inventory to combat the blockades and Prime Minister Trudeau has requested the protesters to stop disrupting rail traffic across Canada. GDP for December will be closely monitored on Friday as markets are preparing for the Bank of Canada to possibly cut rates at next week’s monetary policy meeting.

Euro highlights:

EUR under pressure after increased fears the coronavirus will damage the Italian economy. Italy currently has over 200 cases reported (largest number outside of Asia). Due to the ease of travelling between European countries, concerns about a contagion in Europe have increased. If the virus continues spreading, the Eurozone may suffer a recession; however, markets are hopeful the number of people affected drops soon.  European Central Bank President Christine Lagarde speaks tomorrow.

British pound highlights:

GBP defensive as trade talks with the European Union continue. Prime Minister Boris Johnson said that the mandate for Brexit negotiations will be published on Thursday. Johnson wants to deviate from the existing rules while the European Union wants a “level playing field”. The Brexit trade deadline is the end of this year and currently weighing on GBP.