The BoC cut its overnight rate by 50 basis points again at an unscheduled meeting last Friday.
Monday 16 March, 2020
Daily Currency UpdateCAD - Canadian DollarThe Bank of Canada cut its overnight rate by 50 basis points again at an unscheduled meeting last Friday. This follows a half-point cut at a scheduled meeting on March 4. The extra half-point cut was expected to come at the April 15 meeting. A sizable economic contraction is expected in the second quarter following the fall of crude oil price on top of escalating virus-related sentiment impacts. The BoC said that this cut is a “proactive measure” to fight the pandemic risks and the recent sharp drop in oil prices, which are set to impact negatively the Canadian economy. The BoC’s proactivity increases the chances that it will take the rate to 0.50 or even 0.25 percent this year.Crude oil prices have fallen 56.5 percent from this year’s high of around $US 65.5 a barrel to mid $US 28 at the beginning of last week. Price wars continue to ramp up between the OPEC and Russia in an environment that will most likely see global demand for oil wane in the coming quarters. Crude oil is trading around $US 29 a barrel at the time of this writing, representing a 12 percent fall.
Key MoversThe Fed has cut rates again by a further 100 basis points and restarted its large quantitative easing package by purchasing $700 bn worth of US treasuries and mortgage backed securities. To stress how critical this is, the Fed decided that it couldn't wait until Wednesday when they were due to meet and the central bank have never cut rates by such an extent in one go, not even during the GFC. In a Bretton Woods style move on Sunday there was a coordinated effort globally with the ECB, Bank of England, Bank of Japan, SNB and Bank of Canada all throwing the kitchen sink at the coronavirus by increasing liquidity for the US dollar with a host of these central banks also cutting their own rates. The Bank of England is also expected to cut rates to 0.1 percent later this month now. President Donald Trump has officially declared a national emergency over the coronavirus outbreak in the U.S. He said the U.S. would free up $US 50 billion to deal with the pandemic and he also invoked the Stafford Act to allow for more federal aid for states and municipalities. He added, “I’m urging every state to open emergency operations centres … we'll remove or eliminate every obstacle necessary to deliver our people the care that they need and that they're entitled to … no resource will be spared, nothing whatsoever." This marks a symbolic turning point for the president, who has repeatedly compared the coronavirus to the seasonal flu.
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