Daily Currency Update

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What does the BoC and Fed know that we don’t? The Loonie falls strongly after BoC’s 50 basis points cut.

CAD - Canadian Dollar

The Loonie was in a rally mode versus the U.S. dollar. The USD/CAD was trading at 1.3340 this morning. Definitely the Loonie was following the North American equity market and crude oil prices, which in both cases were increasing over 2 percent this morning. However, the Loonie reversed gains at 10: 00 am EST after the Bank of Canada cut its key rate by 50 bps to 1.25 percent and says its governing council “stands ready to adjust monetary policy further if required,” to combat a material shock from the coronavirus. Early today, on the release side, Labor Productivity Growth Slows to -0.1 percent in 4Q versus an estimated of 0.2 percent.

Key Movers

This morning the Greenback is trading mixed versus the G10 currencies, and the Japanese yen declined broadly as the mood in the markets improved due to the Fed slashing 50 basis points, from 1.5 to 1 percent, in its overnight rate. The Fed has not made such an emergency move since the 2008 financial crisis. Still, given that the FX market is driven by fear these days, and the mounting concerns that the coronavirus outbreak will slow record U.S. economic expansion, it seems the right way to act by the Fed. Chairman Jerome Powell, who said right after his convened press conference: “My colleagues and I took this action to help the U.S. economy keep strong in the face of new risks to the economic outlook... the spread of the coronavirus has brought new challenges and risks.” The question is if Jay Powell finally succumbed to presidential pressure or if the Fed (along with other G7 central banks) know something else regarding the coronavirus or another issue impacting the global economy. We don't see very often central banks shooting their bazookas.

The Greenback increases versus the Yen and Euro but falls against commodity currencies following a Fed's emergency move, not seen since the 2008 crisis.

Riskier currencies such as the Australian and New Zealand dollar outperformed the U.S. dollar by 0.5 and 0.22 percent, respectively. The Aussie dollar was a top performer after better than expected 4Q GDP numbers.

According to Bloomberg, the Fed’s emergency rate cut took some of the sting out of the inflation wave sweeping eastern Europe, helping them to beat peers. For instance, the Polish zloty and the Czech koruna were the best performers against the Euro and U.S. dollar. Chinese yuan rose as well the most since December and added fuel to a rebound in emerging-market currencies.

Expected Ranges

USD/CAD: 1.3350 -1.3465 ▲

EUR/CAD: 1.4810 - 1.4978 ▲

GBP/CAD: 1.7100 - 1.7225 ▲

AUD/CAD: 0.8850 - 0.8931 ▲

NZD/CAD: 0.8415 - 0.8463 ▲