The Canadian rallied alongside a 35% jump in oil prices. West Texas Intermediate, the North American crude oil benchmark soared yesterday, rising from $20.10 U.S./barrel yesterday morning to $27.45/b in early Toronto trading. The oil price spike was triggered by comments from President Trump, suggesting that the U.S. administration would intervene in the Russia-Saudi Arabia oil price war.
Said oil price war is not over; the two sides are still at odds. Russia ‘s refusal to agree to Saudi Arabia’s plan to support prices by reducing production is behind the plunge, and nothing has changed. Nevertheless, the surge in crude prices put the brakes to the free-falling Canadian dollar.
The currency climbed 3.0% from yesterday’s low to this morning’s peak.
Volatile price swings in abnormally wide trading ranges were not just confined to the Canadian dollar. GBP/USD bounced erratically in a wide $1.1410-$1.1875 range in the past 24 hours.
Yesterday, prices climbed from $1.1490 to $1.1790 during the Toronto morning, then plunged to $1.1410 by the end of the day. A surprise from the Bank of England announcing an emergency rate cut from 0.25% to 0.10%, along with another £200 billion in new Quantitative Easing, sparked a nasty short-covering rally that took prices to 1.1875, just before the Toronto session opened today.
The BoE explained its latest decision saying "At its special meeting on 19 March, the (Monetary Policy Committee) MPC judged that a further package of measures was warranted to meet its statutory objectives. It therefore voted unanimously to increase the Bank of England’s holdings of UK government bonds and sterling non-financial investment-grade corporate bonds by £200 billion to a total of £645 billion, financed by the issuance of central bank reserves, and to reduce Bank Rate by 15 basis points to 0.1%."
EUR/USD tracked GBP/USD moves.
EUR/USD also found a short-term bottom yesterday and rose sharply, climbing from $1.0665 to $1.0831. Once again, pre-weekend profit-taking, and a mildly better tone to equity markets, underpinned prices.
USD/JPY tracked U.S. Treasury yield movements. Prices topped out at 111.36 when 10-year Treasury yields traded at 1.18% and dropped to 109.35 when the yield fell to 0.997%. AUD/USD and NZD/USD climbed on the back of the broad U.S. dollar retreat.
The Canadian dollar will continue to trade in step with oil price moves and general U.S. dollar sentiment.
Markets will remain skittish as more and more cities and states order their citizens to self-isolate, order restaurants to close and restrict travel. In this environment, looking for FX direction from economic data is a waste of time.
Rahim Madhavji is the President of KnightsbridgeFX.com, a Canadian currency exchange that provides better rates than the banks to Canadians
