The Canadian dollar fell 1.2% over the course of the last week as USDCAD continues to fluctuate within its recent range. 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, while petro-logistics experts said US oil exports are down 15%. Production in the US has dropped by 1.5m barrels per day due to the low oil price making production unprofitable, leading to well shut-ins. This theme is only likely to continue as $30 a barrel still sits below the breakeven rate for extraction from older wells. Meanwhile, Canada is estimated to have trimmed production by almost 700,000 barrels. It is a long weekend in Canada today as residents celebrate Victoria Day and the loonie looks to have joined them. Despite WTI rising 5.5% in this morning’s session, the loonie is only up a quarter of a percentage point. This is befitting with its recent role as it lags petro-currencies on the oil swings.
The dollar is trading mixed against the G10 this morning as markets gauge the building tensions between the US and China. The Trump administration took it a step further and suggested that Beijing sent airline passengers to spread the virus globally. White House trade adviser Peter Navarro stated on ABC’s “This Week” that “they could have kept it in Wuhan, but instead it became a pandemic. That’s why I say the Chinese did that to Americans and they are responsible”. Navarro’s comments added to recent accusations made by the Trump administration towards China as market participants await the “comprehensive report” on the pandemic’s outbreak. Tensions are mounting between the major economies as the US imposes new restrictions which stop foreign semiconductor manufacturers that use US software from shipping products to Huawei without first obtaining a US license to do so. Huawei officials state that US measures are designed to target them specifically and will have a “serious impact” on global industries. Such trade restrictions saw China float potential retaliatory measures last week, with reduced purchases of Boeing airliners and restricted access for US companies to operate in China being top of the list. Such actions would likely see both sides renegade on the phase one deal, sparking a substantial risk-off move in markets due to the current fragile state of the global economy. Today’s calendar is virtually blank for the US, but on Tuesday there will be housing data released at 13:30 BST, FOMC meeting minutes are released on Wednesday at 19:00 BST and Purchasing Managers’ Indices follow the day after at 14:45 BST.
The single currency is struggling to break out from a tight range as many of its nations begin to ease lockdown measures. EURUSD has traded within a 1.2% range for the last 9 sessions, and today the theme doesn’t look to change. While the Spanish Prime Minister, Pedro Sanchez, will ask Congress to extend the nation’s state of emergency for another month, Italy is looking to loosen lockdown measures in what Prime Minister Guiseppe Conte labelled a “calculated risk”. Italy will see its borders opened up, both domestically and internationally, on June 3rd, while gyms and sports centres will be opened on May 25th and theatres on June 15th. Conte stated that while this move may lead to a rise in the “contagion curve”, the country couldn’t afford to wait for a vaccine. Italy marks the first nation out of the gates to set a firm date on when international travel will resume, while other eurozone nations have only rolled back domestic travel and shopping measures. With very little due out in terms of data today, investors will await headlines coming from a video conference held between French President Emmanuel Macron and German Chancellor Angela Merkel. A statement from Macron’s office added that the two leaders would present a new Franco-German initiative at the end of the meeting around 16:00 BST. While little is known about what the intuitive includes, the conference comes at a time when eurozone tensions remain high over joint debt issuance and fiscal support.
Sterling closed off its worst week since mid-March on Friday, with the currency falling to a 7-week low after comments from the UK’s chief Brexit negotiator, David Frost, stated that “very limited progress” was made toward a deal. Similarly, Michel Barnier, the EU’s chief negotiator, indicated that he was not optimistic a deal would be reached at all. British Prime Minister Boris Johnson threatened to walk away from the negotiation talks if no progress were to be made this week, leaving the pound in an uncertain position with more pain down the road as the June deadline for an extension draws ever closer. The currency fell further upon opening this week after the Bank of England Chief Economist Andrew Haldane stated that the central bank was examining unconventional monetary policy tools, including negative interest rates. In an interview with the Telegraph, Haldane said that “you mention negative rates, but there are other options beyond that, or alongside that, that we’re looking at as well”. The central bank is also considering expanding the scope of its asset purchase programme to include riskier assets. Haldane’s comments prompted overnight interest-rate swaps for December’s meeting to drop below 0% for the first time as market participants alter expectations for negative rates in the UK. Today’s economic calendar is empty for the UK, but the upcoming days are packed with data releases including employment data scheduled for Tuesday at 07:00 BST, inflation figures on Wednesday at 07:00 BST and Purchasing Managers’ Indices on Thursday at 09:30 BST.