News & Analysis
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This week, global oil output cuts are starting to take their toll on benchmark prices, with WTI back up above $30 this morning while Brent crude trades at $34. OPEC+ is well on the way to slashing 9.7m barrels a day just two weeks into its new deal.
The loonie bounced back 0.36% against the dollar yesterday, reversing all of Wednesday’s losses along with some of Tuesday’s. Yesterday saw all six of Canada’s biggest banks pass severe stress testing by the Bank of Canada under its Financial System Review, which was devoted to the Covid-19 crisis.
The dollar has remained on the offensive today, as central bankers focus on managing increasing speculation in financial markets that major central banks such as the Fed and BoE may be forced into negative rates, and President Trump has made a series of comments suggesting a heightened risk of renewed tensions with China.
The loonie spent most of yesterday’s session in the green until a shock slide in oil markets sent it back to lower levels. The shock in oil pricing wasn’t because of a catastrophic fall, but instead because WTI weakened after the Energy Information Administration reported a 745,000 barrel fall in inventories – the first drawdown since January.
UK macro data in Q1 brought a modest unexpected boost to the pound, as the figures showed a relatively more resilient economy than expected amid initial coronavirus shock. Despite the initial positive surprise in the headlines, investors are left with a grim picture.
The loonie struggled to hold on yesterday as it fell half a percentage point against the greenback. Most of the loonie weakness came at the back-end of the session, despite oil rising to recent highs above $26.
G10 FX has traded with a nervous tone so far this week, as yesterday’s broad dollar strength has given way to selling today, with price action following a roughly “risk on” pattern.
WTI futures for June delivery have remained stable above $20 a barrel for six sessions now. Extra support was reinforced yesterday as Saudi officials stated that the oil-producing nation would unilaterally cut an extra 1m barrels per day in June.
Risk appetite is still looking fragile today, after the US dollar has rallied from an early-morning sell-off. Among the G10 currencies NOK and CHF are the best performers. Re-opening is likely to be a major theme for this week, as a number of G10 economies and US states either consider or implement lockdown easing.
Since the Reserve Bank of New Zealand’s last formal Monetary Policy Statement in February, the Bank has engaged in a full suite of crisis response measures, similar to those undertaken by the Federal Reserve, RBA, and Bank of England.