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Canadian dollar update – Friday March 13, 2020. Volatile markets fluctuate greenback amid QE from the NY Fed and ECB.

Canadian dollar update – Friday March 13, 2020. Volatile markets fluctuate greenback amid QE from the NY Fed and ECB.
Albert Edwards
by Albert Edwards on March 13, 2020

CURRENCY MARKET UPDATE

U.S. dollar highlights:

USD soared to the highest level in four years as global stocks continue dropping and fears of the pandemic spreading surge. However, USD retreated and equities recovered after the New York Federal Reserve announced they will offer $500 billion USD in a three-month repurchase agreement. President Trump’s message to the nation on Wednesday in response to the virus left markets pessimistic. China criticized the U.S. for blaming Beijing’s response to the outbreak for worsening the global impact. The coronavirus surfaced in December from the city of Wuhan and surrounding Hubei province; however, most of the new cases have been outside of China. In response, President Trump limited air travel from China at the end of January but markets felt the response was too slow. Trump also said the U.S. will ban all travel from Europe by non-U.S. citizens for thirty days. Meanwhile, Producer prices for February declined the most since February 2015.

Canadian dollar highlights:

CAD weaker and tumbling as crude oil prices plummet. The continued spread of Covid-19 and the price war between Russia and Saudi Arabia is causing CAD weakness. The government is under pressure to add more fiscal stimulus because a recession is possible. Prime Minister Trudeau announced $1.1 billion in healthcare funding in response; however, markets are waiting for reassurance that the pandemic is under control and action plans to boost the economy again. CAD is currently over 9% weaker versus USD from the start of the year.

Euro highlights:

EUR weaker and defensive after the European Central Bank left interest rates unchanged at -0.50%, announced an expansion of Quantitative Easing (by €120 Billion) and introduced new Targeted Longer-Term Refinancing Operations (TLTRO). President Lagarde hopes long term funding for banks will stimulate lending to the economy with low risk borrowing conditions. Germany will also relinquish balanced budget rules to deal with the virus. Meanwhile, Industrial Production increased 2.3% monthly in January (versus 1.4% expected). EUR remains under pressure because the economy relies on manufacturing and is more vulnerable to a slowdown in China.

British pound highlights:

GBP weaker as post-Brexit talks and containing the pandemic will be the primary focus. After the central bank eased interest rates, the government announced a stimulus plan to help the economy recover. Prime Minister Boris Johnson also said they will shift focus from containing the virus to delaying the peak of the outbreak. Lower stocks and risk appetite also weighing on GBP.

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