Monday, June 29, 2020

Canadian Dollar Tumbles Amid Crude and Covid Worries

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News shaping
the markets today

     

What’s happening: The Canadian dollar plummeted on Friday, falling to a near four-week low versus the greenback.

What happened: The Canadian dollar was the worst performing currency in last week’s forex trading, falling against most major rivals.

The USD/CAD gained again last week as investors returned to the greenback due to modest risk aversion amid a surge in covid-19 cases around the world. Meanwhile, the Canadian dollar was hammered by concerns around the country’s exports being hit.

Why it matters: The rally in oil prices for around two months stalled last week, with the WTI receding to below $40 per barrel. Oil futures came under pressure as rapidly growing coronavirus cases around the world suggested a slow and painful recovery in crude demand.

For the week, WTI lost 3.4%, while Brent was down by 2.8%. Sentiment for the loonie remained subdued in last week’s forex trading, with crude being Canada’s largest export.

Meanwhile, many US states witnessed a jump in new cases, amid efforts to reopen their economies. Texas and Florida tightened restrictions on businesses, as cases in the US crossed 2.5 million. The news did not bode well for the loonie, with US being Canada’s largest market and an importer of 75% of its products.

Investors also started worrying about US reinstating tariffs on Canada’s aluminium. The loonie also took a hit after Fitch Ratings downgraded the Canadian AAA long term debt rating to AA+, due to rising government deficits following the coronavirus-related shutdowns.

Comments from Bank of Canada Governor Tiff Macklem added to the uncertainty by suggesting several risks ahead due to the pandemic resurgence, albeit while pointing towards some economic recovery in the third quarter.

The Bank of Canada has lowered its benchmark interest rate by 150 bps since March and unveiled around C$300 billion in various measures to cushion the economic impact of the pandemic.

What to watch: Traders await a basket of economic reports from Canada, including building permits, producer prices and raw materials prices. The industrial product price index, which dropped 2.3% in April, is expected to decline another 0.5% in May. Raw materials prices are projected to drop 7.5% in May. Several economic reports from the US are also expected to decide on the currency’s performance in today’s forex trading.

The Markets Today

     

US stocks will be in focus today, ahead of economic data scheduled to be released later in the day.

Context: US stocks closed lower on Friday, falling to their worst levels in around two weeks after Texas and Florida paused their reopening measures following a surge in coronavirus cases.

Details: The US reported 37,000 new cases on Thursday, the highest single-day rise, taking the number of infections past the 2.5 million mark by the end of the week.

With Texas and Florida recording 6,426 and 8,900 new cases on Thursday, the governors of both states ordered restrictions on certain businesses, reversing some of their reopening measures.

Markets also digested results of the US Fed’s annual bank stress tests, requiring the preservation of capital by banks.

On the economic data front, US consumer spending surged to a record 8.2% in May, following a sharp decline in April. However, the final reading of the University of Michigan’s consumer-sentiment index fell to 78.1 in June, versus an initial reading of 78.9.

The Dow Jones index dipped 730 points to end at 25,015.55 on Friday, while the S&P 500 shed around 75 points to end the indices trading day at 3,009.05. All eleven sectors of the S&P 500 finished in the red. For the week, the Dow Jones index and the S&P 500 lost 3.3% and 2.9%, respectively. The Nasdaq lost 2.6% to close at 9,757.22 on Friday, falling 1.9% for the week.

Shares of Nike nosedived around 8% on Friday after the company posted a loss for the recent quarter, with total sales declining by 38%. Gap’s stock climbed around 19% after the company announced a collaboration with Kanye West.

What to watch: Investors await a couple of economic reports from the US, including the pending home sales and Dallas Fed manufacturing index. The pending home sales index, which fell 21.8% in April, is expected to rise 19.7% in May. The Dallas Fed manufacturing index is expected to climb to -49.2 in May, from a record low of -74.0 in April

Markets will also continue to assess the coronavirus numbers, with the US reporting around 2,548,996 cases with 125,803 deaths.

Other Markets: European indices were trading higher at 8:30am GMT, with the FTSE 100, French 40 and Dax 30 index up by 0.1%, 0.2% and 0.5%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Spain's industrial confidence, Germany’s inflation rate as well as Saudi Arabia’s bank lending growth and money supply M3.