The Canadian dollar is trading like a roller coaster without brakes. In the past 24 hours, USD/CAD rallied from $1.3709 to $1.3960, then dropped $1.3784, where it opened in Toronto today. Prices rallied to $1.3825 in early Toronto trading.
The Canadian dollar is suffering from a litany of woes. The government of Canada’s fiscal response to the worsening coronavirus outbreak paled in the face of stimulus packages from Australia, Great Britain and the United States. On March 11, Canada announced it would spend $1.0 billion to help Canadians cope with the coronavirus outbreak. In comparison, Australia said it would spend $17.6 billion to help protect its economy.
The Saudi Arabia/Russia oil price war drove West Texas Intermediate (WTI) oil prices 44% lower than they were last Friday at one point. They recovered but are still down 25%. The Saudis wanted to cut crude production by another 1.5 million barrels per day, to shore up prices.
Russia thought the only beneficiaries of such a move would be U.S. shale producers and they balked. That’s when the Saudi decision to go for market share unsettled global financial markets.
The oil price collapsed, and Italy’s rather draconian decision to quarantine most of the country rattled global markets. News of virus outbreaks in Germany, Spain and the U.K. exacerbated the angst and led to the cancellation of major sporting events and the banning of large gatherings.
Equity traders were spooked.
Wall Street suffered its most significant loss since the 2008 financial crisis dropping nearly 10.0% in a single day, Thursday. Fed Chair Jerome Powell rode to the rescue. In what some analysts are calling Quantitative Easing lV (QE4), the Fed injected $1.5 trillion of liquidity into the Treasury market.
In a statement, the Fed said: "The Open Market Trading Desk (the Desk) will offer $500 billion in a three-month repo operation and $500 billion in a one-month repo operation for same day settlement. Three-month and one-month repo operations for $500 billion will be offered on a weekly basis for the remainder of the monthly schedule. The Desk will continue to offer at least $175 billion in daily overnight repo operations and at least $45 billion in two-week term repo operations twice per week over this period.
"These changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak."
The news appealed to European traders, and their main indexes have rebounded around 7.0% today.
Meanwhile, the U.S. dollar opened on a mixed note, compared to yesterday’s closing levels but is substantially higher since last Friday’s close.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
