Daily Currency Update

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The Loonie trades higher, despite a more pessimistic Financial System Review (FSR) and worse conditions in Canadian real estate.

CAD - Canadian Dollar

The Loonie is rallying versus most G10 currencies (+0.42 versus the Pound, +0.29 percent versus the Euro, and +0.1 versus the Greenback). The Canadian economy is not out of trouble yet, due to the Covid-19 pandemic situation. Poloz and Wilkins from the BoC, using the traditional purpose of the FSR to identify key vulnerabilities in the financial system, said that emergency measures to deal with the economic impacts of Covid-19 are showing promising signs of performing well, but the Canadian economy is facing an uncertain future. The FSR proposes these measures to help ease liquidity strains and provide easy access to short-term credit for companies and households. The BoC is focusing on the number of people having trouble staying on top of their mortgages; for now, they believe that the mortgage arrears rate will have risen to 2.1 per cent of all loans by July, given that the rate of mortgage arrears topped out at 0.4 percent in the last recession in 2009. Even with all the new policies in place, the bank thinks that rate will double this time.

The USD/CAD is trading at 1.4085, following a 4 percent increase in crude oil after Saudi Arabia announced that it will trim oil shipments to the prized Asian market in June and cut exports even more aggressively to Europe and the U.S. The IEA sees the oil market improving amid the sharp drop in production.

Key Movers

The Greenback trades flat this morning amid a weaker US equity market. It is trading lower against the Loonie, but higher against the Aussie, Pound, and Euro. After the House of Representatives released a proposed $3 trillion relief bill on Tuesday, Fed chair Jerome Powell urged Congress to do more against the economic impacts of the Covid-19 pandemic. The problem is that the pandemic-fueled recession is morphing from having a short-term impact to a potential long-term recession, where economists, including Fed officials, are urging policymakers to adjust government spending accordingly. In a speech yesterday, Powell talked about the risk of long-term economic pain and said that the Fed has been aggressive and remains willing to do more, but that fiscal policy is important as well. He also added, “The recovery may take some time to gather momentum and time can turn liquidity problems into solvency problems."

Finally, Trump had some “positive" comments about Powell (Fed chair): "He has done a very good job over the last couple of months, I have to tell you that ... Because I have been critical, but in many ways I call him my MIP." Trump then explained that MIP means Most Improved Player. The USD dollar is trading 0.3 higher than the Euro at the time of this writing.

Rishi Sunak advised that the UK was heading for a "significant recession," as figures show the economy contracting at the fastest pace since the financial crisis. The economy contracted 2 percent in Q1 and is affected by 2 weeks of shut down. As a comparison, France and Italy saw much bigger contractions of 5.8 percent and 4.7 percent respectively in the first quarter, where lockdowns were imposed up to two weeks earlier.

Expected Ranges

USD/CAD: 1.4050 - 1.4167 ▼

EUR/CAD: 1.5067 - 1.5300 ▼

GBP/CAD: 1.7123 - 1.7200 ▼

AUD/CAD: 0.9008 - 0.9060 ▼

NZD/CAD: 0.8332 - 0.8429 ▼