Daily Currency Update

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The Loonie rallied in overnight trading due to the expectation of a more dovish Fed.

CAD - Canadian Dollar

The Loonie is in a rally mode and it is outperforming the Euro, British Pound, U.S. dollar, and Kiwi dollar by 0.19, 0.41, 0.14, and 1.1 percent, respectively. This rally stems from anticipation for Fed Chairman Jay Powell’s webinar, which is expected to address the economic outlook and bets on negative rates.

Crude oil is trading close to a five-week high as investors weighed the late recovery of demand against concerns about more covid-19 cases if lock-downs are relaxed too early. Furthermore, Iraq is leading cuts in oil supply to the Asian market, which is also increasing prices for China that has recently increased demand.

There are no economic releases in Canada, but it is helpful to remember that the Canadian economy is in the midst of a unique contraction with an employment decline of over 3 million. Bloomberg Economics projects 2Q GDP will plunge about 48 percent annualized, following an annualized decline of 9.2 percent in 1Q. It also expects a sharp rebound in 3Q, with unemployment remaining above 10 percent until the end of the this year.

Key Movers

Fed Powell said this morning that fiscal policy might need to do more to combat the lasting economic damage from the coronavirus pandemic and he slammed the door on Trump's desire for negative rates. Powell added, “...the evidence on the effectiveness of negative rates is very mixed ...It’s an unsettled area...I know that there are fans of the policy, but for now it’s not something that we’re considering. We think we have a good toolkit, and that’s the one we’ll be using.” President Donald Trump tweeted on Tuesday that, “...as long as other countries are receiving the benefits of Negative Rates, the USA should also accept the ‘GIFT’”.

Fed Chair Jerome Powell,* IMF Chief Economist Gita Gopinath, and others have been saying that a quick recovery for the U.S. economy is a “fantasy”.

The Kiwi dollar weakened versus all major G10 peers as the FX market has begun to price in negative policy rates after the RBNZ almost doubled its quantitative easing program. The RBNZ signaled further interest rate cuts.

Expected Ranges

USD/CAD: 1.4050 - 1.4167 ▲

EUR/CAD: 1.5237 - 1.5293 ▲

GBP/CAD: 1.7171 - 1.7297 ▼

AUD/CAD: 0.9076 - 0.9111 ▼

NZD/CAD: 0.8390 - 0.8463 ▼