The Canadian dollar plunged overnight. It had a lot of company. A surge in the number of new COVID-19 cases in U.S. states, many of which eased lockdown restrictions early, led to fears of a second-wave pandemic. The U.S. reported 38,173 new infections on Wednesday, a number that surpassed the worst day totals at the height of the outbreak in April. The outbreaks are occurring in the Southern states whose citizens believed that the U.S. Constitution would protect them better than social-distancing measures and wearing face masks. President Trump likes to boast that the U.S. is the greatest, most powerful, nation on earth.
He can add that the U.S. is at the top of the list for countries having COVID-19 infections as well.
The surge in COVID-19 cases spooked Wall Street, and traders headed for the exits. The Dow Jones Industrial Average fell 2.72% yesterday, and S&P 500 futures are pointing to more losses today. Today’s U.S. weekly jobless claims data may add to concerns that the US economy is at risk. The forecast is for claims to rise 1.3 million. U.S. Q1 Gross Domestic Product is forecast to increase just 1.4%, while May Durable Goods Orders are expected to rebound from -17.7% in April to 10.6%. Weaker-than-expected data suggesting the U.S. economy is slowing may spark renewed equity market selling, and spark another bout of risk aversion demand for U.S. dollars.
Fitch Ratings Inc cut Canada’s AAA Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘AA+’ from ‘AAA’; Outlook Stable. They blamed the deterioration in Canada’s public finances due to the coronavirus pandemic. Fitch is also predicting a severe recession in 2020 with a drop in GDP of 7.1%. The news was eclipsed by the bout of risk aversion sentiment but will serve to limit Canadian dollar gains in the future.
The Canadian dollar was undermined further by falling crude oil prices. Oil traders are concerned that a renewed global slowdown, and higher U.S. crude inventories will more than offset the latest production cuts from the Organization of the Petroleum Exporting Countries.
The International Monetary Fund (IMF) downgraded its global growth outlook again. The IMF now expects the global economy to shrink by 4.9% in 2020. It forecast Canada’s 2020 GDP growth at -8.4%.
The U.S. dollar extended yesterday’s gains overnight and is trading on a firm note in Toronto ahead of this morning’s U.S. data dump.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians