It has been a great week for Canadian dollar bulls, even though the hometown currency gave back some gains overnight. The Canadian dollar rose 2.58% since the start of trading on Monday. However, those gains pale in the face of the $5.41% gains enjoyed by the Australian and New Zealand dollars.
Global market risk sentiment took a turn for the better following massive injections of liquidity by the major central banks alongside huge fiscal stimulus programs put into place by G-7 governments. The planned $2.3-trillion stimulus package in the U.S. helped flip Wall Street stocks from bear markets back to bull markets.
However, that move should be viewed skeptically. The magnitude of daily ranges is exacerbated by poor liquidity, and COVID-19 cases continue to rise worldwide. Overnight, the major equity indexes in Asia rallied, led by the Nikkei 225, which rose 3.88% supported by Thursday’s Wall Street gains. The positive sentiment didn’t carry forward into Europe.
The major indices are down sharply, as are S&P futures, which suggest a negative open on Wall Street today.
The U.S. has 81,231 confirmed cases, surpassing the number in China. Globally, there are over 537,800 cases, and the death toll has reached 24,126. Today, U.K. Prime Minister Boris Johnson said he tested positive for COVID-19. Spain recorded its highest single-day death toll.
Despite that news, European Union officials have delayed implementing a coordinated E.U. fiscal response to the crisis, as the massive bureaucracy needs at least two more weeks to assess the situation.
Fed Chair Jerome Powell didn’t have any problems assessing the U.S. economic outlook.
Yesterday, he said the U.S. might already be in a recession. He added that he expected the decline in economic activity would be “pretty substantial.”
USD/CAD traded in a $1.3992-$1.4555 range this week, reaching the bottom of the band overnight following Thursday’s domestic and U.S. stock market rallies. However, the ongoing Russia/Saudi Arabia oil price feud and the decimation of the Canadian oil industry, combined with the economic collapse from the coronavirus crisis, will limit USD/CAD losses below $1.3990.
Unionized government employees, employed by Service Canada, have refused to work, citing health-care concerns, which will severely impede access to benefits by unemployed taxpayers and worsen the COVID-19 hit to the economy.
Once again, today’s Canadian dollar direction will be subject to broad U.S. dollar, and Wall Street moves.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians