The Canadian dollar had a rough time of it overnight. It closed at its best level for Thursday’s session, but things went pear-shaped in Asia. The Australian and New Zealand dollars reacted poorly to the World Health Organization’s (WHO) declaration that the Wuhan coronavirus outbreak was a “Global Emergency.” Its statement praised China for its efforts at containment.
It said “The Committee emphasized that the declaration of a PHEIC should be seen in the spirit of support and appreciation for China, its people, and the actions China has taken on the frontlines of this outbreak, with transparency, and, it is to be hoped, with success. In line with the need for global solidarity, the Committee felt that a global coordinated effort is needed to enhance preparedness in other regions of the world that may need additional support for that.”
AUD/USD dropped to $0.6684 from $0.6728 while NZD/USD fell from $0.6493 to $0.6456, due to fears that the coronavirus would put a serious dent into China’s economic growth prospects. China is its biggest trading partner. If its growth slows, so will its demand for goods from the antipodean countries.
The Canadian dollar sank alongside the Australian and New Zealand dollars even though China trade is far less important to Canada. China is Canada’s second-largest trade partner, but it accounts for only 4.7% of the total trade volume. The U.S. has the lion’s share. The problem for Canada is oil. West Texas Intermediate (WTI) has plunged dramatically since the coronavirus outbreak, and the Canadian dollar usually correlates well with WTI prices.
The Canadian dollar continues to suffer from the Bank of Canada’s (BoC) dovish monetary policy flip-flop on January 22. BoC Governor Stephen Poloz, in speeches and comments prior to the monetary policy meeting, implied the BoC would stick to a neutral policy outlook. It didn’t.
Yesterday, Deputy Governor Paul Beaudry’s speech in Quebec failed to shed any light on the new outlook. He said, “The same policy choice that helps the central bank attain its inflation target in the short run may be making it more difficult to attain its target in the longer run.”
Today is the day the United Kingdom discards its membership in the European Union, but it doesn’t have any bearing on today’s GBP/USD strength. That is due to Bank of England Governor Mark Carney’s swan-song policy U-turn. The Bank of England left interest rates unchanged after Carney and other Monetary Policy Committee (MPC) officials indicated that a rate cut was in the cards. Two MPC voters opted to cut interest rates to 0.50% from 0.75%, but the other seven did not.
FX trading may be a tad messy today due to Canadian November Gross Domestic Product data, and month-end portfolio rebalancing flows.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians