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Canadian dollar update – Friday February 14, 2020. Virus optimism vanished causing safe-haven demand again and stocks vulnerable.

Canadian dollar update – Friday February 14, 2020. Virus optimism vanished causing safe-haven demand again and stocks vulnerable.
Albert Edwards
by Albert Edwards on February 14, 2020


U.S. dollar highlights:

USD firm after Consumer Prices increased 2.5% in January (higher than expected 2.4% and the most since October 2018). Core inflation rose 0.2% monthly and 2.3% annually. Increases in the prices of airline tickets, health care, recreation and education all assisted with inflation last month. Initial jobless claims for last week was 205K (lower than expected 210K and previously revised to 203K). Meanwhile, the number of coronavirus infections in China increased (after the diagnosis method changed). Equities and commodities will be affected most as the demand for oil will drop with negative market sentiment. Risk-appetite is weaker again and USD strength is forecasted until the virus fears vanish. All eyes on the retail sales report for January available today.

Canadian dollar highlights:

CAD defensive after risk-aversion returns. Bank of Canada Governor Stephen Poloz emphasized the economy is performing well, even though there are pressures to cut interest rates. Poloz also noted that there are financial vulnerability risks with an insurance rate cut. Markets interpreted this as a lower chance the central bank will change their monetary policy next month. CAD has been vulnerable since the epidemic as markets flock to safe-haven assets (Gold, USD, JPY, CHF and German Bunds).

Euro highlights:

EUR weaker and soft after industrial production in the Eurozone dropped 2.1% in December (and 6.9% lower than two years ago). The economy is slowing as German factory orders also dropped and GDP was only 1.7% for Q4. Eurozone growth forecasts have been revised down and this will keep EUR under pressure. Markets are pricing in more stimulus from the central bank and this is also weighing on the EUR.

British pound highlights:

GBP stable after Prime Minister Boris Johnson reshuffled his cabinet and may introduce new fiscal measures next month. This will help boost the economy temporarily and reduces the chances of the central bank cutting rates soon. GBP is recovering after last month’s GDP and industrial production reports were better than expected. However, markets are still cautious and expecting new Governor Andrew Bailey to cut rates next month.