The Impact of the Coronavirus
Before going into the BOC meeting, we must address the coronavirus, and its impact on slowing down global activities and economic growth.
Last week, we saw indices taking a large plunge. S&P 500 lost 16%, and it was the same story with the other major indices.
The G7 and other central banks came forward to express support. In other words, they made a promise to print more money and make it available for the markets.
This fresh stimulus package succeeded, and some indices clawed back a minor portion of last week’s losses.
Central banks are also expected to keep interest rates lower for longer or indeed be more willing to cut rates due to the slowdown in global economic output caused by the coronavirus.
The BOC, for now, is on the same page. We can expect it to cut rates by 25 basis points during today’s policy meeting.
Last week, USDCAD broke out to the upside, after slicing through the 1.3300 handle. It then tested the 1.3460 level.
The move likely occurred due to oil prices tumbling to a multi-low and markets pricing in a certain rate cut from the BOC. The current retrace lower in USDCAD is suggesting that the expected rate cut is mostly already priced in.
Also of note is the fact that the continued fall in oil prices could have a detrimental effect on the Canadian economy and its employment situation.
On a more positive note, oil may have found much-needed support around current levels. This comes as OPEC initiated steeper cuts in oil output due to slowing global demand, amidst the backdrop of the continued spread of the coronavirus.
Thus, this news was one of the factors for the current retrace or the potential relief rally for the Canadian dollar.
In the upcoming days, we are sure to see more volatile price action surrounding USDCAD. The BOC meeting will be followed by the ADP private-sector report, and finally the NFP from the United States.
BOC policymakers may communicate that they will stay dependant on the upcoming data before deciding on the next rate move. However, expectations are high for further cuts over the coming months.
Expectations are for the 1.3290-1.3300 level to be major support going forward, followed by the 1.3260 level.
Overall; the Canadian dollar is looking weaker while trading and closing above a fresh break point coming around to the 1.3300 handle.