VBCE Foreign Exchange Wrap Up for Mar. 2 – 6, 2020

Steve Brown, Senior Corporate Trader | Stevebrown@vbce.ca

The CAD was the worst performing currency in what was another volatile week. After trading to 1.3464 the previous Friday, USDCAD moved dramatically lower during Monday's session towards 1.3315. Equity markets followed Friday's late surge higher with the DJIA adding 2,000 pts on central bank stimulus hopes. Oil prices also surged 12% early in the week on hopes that Friday's OPEC meeting would result in the necessary additional output cuts to stabilize markets. Markets were "buying the rumour" and "selling the fact" as more volatility ensued. After the U.S. Fed announced an emergency interest rate cut of 50 bp (the next scheduled meeting is March 18th) markets sold off again and USDCAD dropped from 1.3380 down to 1.3320 before moving back to 1.3391. The pairing dropped back to 1.3330 ahead of the Bank of Canada interest rate decision. The BOC also cut rates by 0.50% sending USDCAD up to 1.3430. Equity markets sold off heavily with the DJIA losing nearly 2,000pts while oil prices dropped 15%. Friday's OPEC meeting failed to generate the 1.5 million barrels per day production cuts the market had been anticipating. Despite good jobs data out of the U.S. and Canada, USDCAD moved from 1.3380 up to 1.3440 before closing the week @ 1.3420.

Weekly Open

Low

High

Weekly Close

USDCAD

1.3405

1.3315

1.3438

1.3423

EURCAD

1.4780

1.4728

1.5245

1.5146

GBPCAD

1.7185

1.6960

1.7526

1.7515

JPYCAD

0.01252

0.01227

0.01277

0.01273

AUDCAD

0.8696

0.8685

0.8924

0.8909

Key Events:

*USDCAD holds near 9 month highs (from 3 week lows 2 weeks ago)

*EURCAD surges to 14 month highs (from 3 year lows 2 weeks ago)

*GBPCAD falls to 4 month lows before climbing towards 3 month highs

*JPYCAD surges to 14 month highs (from 14 month lows 2 weeks ago)

*AUDCAD rebounds from 10 year lows and climbs to 3 week highs

*Crude oil (WTI) surges 12% towards 1 week high before plunging 15% to 15 month lows (range $41.20 - $48.75)

*USD index DXY falls from 3 yr high towards 1 month low (range 95.70 – 98.03)

*U.S. 10 yr Treasuries fall towards historical lows: range 0.66% to 1.17%

*China Caixin manufacturing PMI: 40.3 exp 45.7 prev 51.1

*Germany Markit manufacturing PMI: 48 exp 47.8 prev 47.8

*Eurozone Markit manufacturing PMI: 49.2 exp 49.1 prev 49.1

*UK Markit manufacturing PMI: 51.7 exp 51.8 prev 51.9

*Canada market manufacturing PMI: 51.8 prev 50.6

*U.S. Markit manufacturing PMI: 50.7 exp 50.8 prev 50.8

*U.S. ISM manufacturing PMI: 50.1 exp 50.5 prev 50.9

*Australia central bank interest rate decision: 0.5% exp 0.75% prev 0.75%

*Eurozone core CPI y/y: 1.2% exp 1.2% prev 1.1%

*Unscheduled U.S. Fed interest rate decision: 1.25% prev 1.75% https://www.federalreserve.gov/newsevents/pressreleases/monetary20200303a.htm

*Australia GDP Q4 qoq: 0.5% exp 0.3% prev 0.6%

*Germany retail sales m/m: 0.9% exp 1% prev -3.3%

*Eurozone retail sales y/y: 1.7% exp 1.1% prev 1.7%

*U.S. ADP employment change: 183,000 exp 170,000 prev 209,000 (revised from291k)

*U.S. non-manufacturing PMI: 57.3 exp 54.9 prev 55.5

*Bank of Canada interest rate: 1.25% exp 1.50% prev 1.75% https://www.bankofcanada.ca/2020/03/fad-press-release-2020-03-04/

*Australia retail sales m/m: -0.3% exp 0% prev -0.7%

*Canada net employment change: 30,300 exp 10,000 prev 34,500

*Canada unemployment rate: 5.6% exp 5.6% prev 5.5%

*Canada average hourly wages: 4.33% prev 4.43%

*Canada int'l merchandise trade: -$1.47 billion exp -$0.83 billion prev -$0.73 billion

*U.S. non-farm payrolls: 273,000 exp 175,000 prev 273,000 (revised from 225k)

*U.S. unemployment rate: 3.5% exp 3.6% prev 3.6%

*U.S. avg. hourly earnings m/m: 0.3% exp 0.3% prev 0.2% y/y: 3% exp 3% prev 3.1%

*U.S. trade balance: -$45.3 billion exp -$46.1 billion prev -$48.6 billion

On Tap for next week:

Mon Mar 9: Germany trade balance: €18.5 billion exp €15.4 billion prev €19 billion

Germany industrial production m/m: 3% exp 1.5% prev -2.2%

Tue Mar 10: China CPI y/y: 5.2% exp 5.2% prev 5.4%

Eurozone GDP Q4 y/y: 1% exp 0.9% prev 0.9%

Wed Mar 11: Bank of England interest rate: 0.25% prev 0.75%

UK industrial production m/m: -0.1% exp 0.3% prev 0.1%

UK GDP m/m: 0% exp 0.2% prev 0.3%

UK manufacturing production y/y: -3.6% exp -3.5% prev -2.5%

U.S. CPI m/m: 0.1% exp 0% prev 0.1% y/y: 2.3% exp 2.2% prev 2.5%

U.S. CPI ex food & energy m/m: 0.2% exp 0.2% prev 0.2% y/y: 2.4%exp 2.3%prev 2.3%

Thurs Mar 12: Eurozone industrial production m/m: exp 1.4% prev -2.1%

U.S. producer price index m/m: exp -0.1% prev 0.5% y/y: exp 1.8% prev 2.1%

ECB interest rate decision: exp 0% prev 0%

Fri Mar 13: Germany CPI harmonized y/y: exp 1.7% prev 1.7%

U.S. consumer sentiment index: exp 95 prev 101

**Significant event risk unfolded over the weekend from Saudi Arabia's new oil pricing / production policies announced Saturday. They announced a drastic reduction in official selling prices with discounts as much as $8 / barrel. They also announced plans to increase oil production from 9.7 million barrels / day to 12.3 million barrels / day beginning in April. Given the drastic reduction in oil demand stemming from COVID-19, this is a significant market shock and oil prices have plunged dramatically to 4 year lows. Over the past 3 weeks, WTI crude has fallen 50% (from $54.56 down to $27.60). There were significant risk aversion flows into the JPY, EUR, and USD at the market open on Sunday with several currency pairs moving as much as 8%. USDCAD gapped higher from 1.3420 to 1.3550 and extended as high as 1.3751 – near two year highs. Volatility remains elevated as USDCAD dropped back to 1.3520 before retesting the 1.3700 level.

Technically, USDCAD is bullish. **There were significant developments over this past weekend that have affected the outlook for the CAD. USDCAD gapped higher running through several resistance barriers (notably 1.3464, 1.3525, 1.3565, and 1.3650) to trade near 2 year highs.

Topside targets to consider: 1.3750, 1.3800, 1.3900, 1.4000

Downside targets to consider: 1.3610, 1.3520, 1.3420, 1.3330

1 Week Chart

6 Month Chart

1 Year Chart

Sources: Reuters, Bloomberg, FXStreet, RBC Capital Markets, Bank of Canada.S. Federal Reserve,

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