- Russian invades Ukraine
- WTI oil tops $100.00/barrel
- Major currencies slide on safe-haven demand for US dollars
USDCAD Snapshot: open 1.2828, overnight range-1.2730-1.2846, close 1.2738, WTI open $99.76, Gold open $1973.16
The Canadian dollar plunged on the news that Russia invaded Ukraine. Russian President Vladimir Putin authorized what he calls a “special military operation” to demilitarize Ukraine, and Western leaders called it an invasion.
Mr Putin justifies the action due to historical territorial claims, but mainly as a preemptive strike to prevent NATO from admitting Ukraine to the defense pact.
So far, Western governments have limited their reactions to economic sanctions and outraged rhetoric. Today, the US and its allies are reportedly unveiling another slew of sanctions, which UK Prime Minister Boris Johnson says will hobble the Russian economy.
Possibly, but Mr Putin is well aware of the impact of sanctions on his country, and various reports suggest that he has dramatically reduced Russia’s exposure to such moves. The EU, especially Germany, is exposed to risks that Russia would disrupt oil and gas flows to the region.
News of the invasion sent global stock markets tumbling. The major Asia equity indexes closed with steep losses with Australia’s ASX 200 index losing 2.98%. European bourses were hit even harder. The German Dax is in free-fall, losing 5.10% by lunchtime in Europe. DJIA and S&P 500 futures are deep in the red with both indices down 2.5%. Gold prices soared reaching $1,974.32, and WTI oil touched $100.49/barrel. The US 10-year yield fell to !.855%.
EURUSD fell to 1.1156 from 1.1308 due to its proximity to the Russia/Ukraine conflict. A large part of the Euro-area is also exposed to an energy shortage if Russia retaliates against EU sanctions by disrupting oil and gas shipments. EURUSD was already suffering from divergent Fed and ECB monetary policies and the Russian news exacerbated the pain. A decisive breach of the 1.1130-40 area level suggests steeper losses to 1.0850.
GBPUSD dropped to 1.3385 from 1.3548 due to safe-haven demand for US dollars and concerns that the Russia/Ukraine conflict may derail Bank of England rate hike plans.
The Canadian dollar should be relatively insulated from the European turmoil. Positive Canadian economic growth, the risk of higher domestic interest rates and an abundance of natural resources, including oil, suggest the Canadian dollar may soon benefit from “safe-haven” demand as investors diversify.
There are a lot of US economic reports today. Q4 GDP (forecast 7.0% y/y), jobless claims, PCE, and New Home Sales are on tap.
