The Canadian dollar entered rally mode overnight. It didn’t have anything to do with domestic issues but stemmed from an improvement in global risk sentiment. Trillion-dollar spending packages will do that. Unfortunately, the overnight gains evaporated in early Toronto trading.
The U.S. government is in the final throes of a negotiation that could lead to a $2-trillion injection into the economy. The package reportedly includes plans for $1,200 payments to adults and $500 for each child and a $500-billion loan program. Those actions are on top of the measures announce by the Federal Reserve yesterday and have fueled today’s shift into positive risk sentiment.
The Canadian government has stepped up to the plate to help support the domestic economy. The government announced new spending measures of around $85 billion to provide support to individuals and business impacted by the COVID-19 outbreak. Yesterday, it announced plans to give themselves sweeping new tax and spend powers, without the aggravation of having to obtain parliamentary approval. That didn’t go over well, and the bill is being amended.
WTI rose from $23.72 U.S./barrel to $25.14/b before dropping to $24.05 in early Toronto trading. Oil prices rallied on hopes that the various fiscal and monetary stimulus plans announced by the G-10 finance ministers, and central bank governors would boost demand.
However, traders quickly realized that government ordered lockdowns in cities and regions around the world would sharply curtail travel and commuting, and demand for oil in the process. The Canadian dollar rally halted when WTI prices erased their overnight 4.5% gain.
The Canadian dollar underperformed when compared with the other commodity-bloc currencies. AUD/USD and NZD/USD extended yesterday’s gains with prices supported by a shift into risk-seeking assets, which sparked broad U.S. dollar selling.
Economic data continues to be ignored. EUR/USD and GBP/USD rallied despite weak eurozone and U.K. Manufacturing and Services Purchasing Managers Index data indicating rising recession risks. The data pre-COVID-19 and is outdated.
FX sentiment improved overnight, alongside rebounding equity markets in Asia and Europe. Asia traders ignored the weak market close on Wall Street and bought stocks. Japan’s Nikkei 225 index soared 7.10%. European indices followed Asia’s lead with the German DAX rising 6.4% as of 8:00 am EDT. S&P futures are up 4.6% after earlier triggering a “limit-up” circuit breaker.
The USD/CAD technicals are bullish above $1.4370 with resistance seen at $1.4570
Canadian dollar traders will be guided by Wall Street price action, and oil price moves, with all markets awaiting news on the U.S. stimulus package
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians