News & analysis


After touching a six-week high in yesterday’s session, the loonie sharply retraced its gains to sit lower against the dollar at close. There were multiple avenues to search for the reversal in the CAD rally, such as a flat February GDP reading which undershot expectations of a mild 0.1% rise, and a softening tone from Governor Stephen Poloz that the bank’s balance sheet will cause an inflationary spike. Speaking to students at Western University’s Ivey Business School, the exiting governor said the balance sheet expansion will reverse once the economy improves and financial conditions return to normal. Poloz denied that this process is similar to QE, a theme the central bank has been hammering home lately, with the bank not embarking down the route of permanent balance sheet expansion. News also out yesterday from government sources suggested that Finance Minister Bill Morneau is scheduled to announce BoC Poloz’s successor this afternoon. After Blackrock’s Jean Boivin exited the race, after the company confirmed Mr Boivin will remain at Blackrock, current deputy Carolyn Wilkins is primed to take the reigns. The smooth transition of deputy to governor is unlikely to unnerve markets. Whoever gets the job, however, will inherit a position which is wildly different from the one they formally interviewed for back in February and early March due to the impact of Covid-19. Also expected this afternoon is April’s Manufacturing PMI at 14:30 BST, which is likely to extend its slide into contractionary territory after printing 46.1 in March. Meanwhile, the Canadian dollar has continued yesterday’s trend as it follows currencies like AUD and NZD deeper into the red this morning.


This week’s trend of dollar weakness intensified yesterday, with the greenback weakening against most major currencies. The dollar’s losses accelerated around 4pm London time, when the daily “fixed” exchange rates were recorded by WM/Reuters. Despite being an old mechanism due to the accessibility of pricing via the internet, the fixed rates are still used as a benchmark by various market participants, leading to heightened volatility around the event in some instances. Paradoxically, the dollar strengthened sharply against the Japanese yen in the lead up to 4pm despite weakening against most major counterparts. Month-end portfolio rebalancing by large asset managers was one possible cause. The dollar did manage to regain some lost ground overnight, particularly against its Canadian counterpart, but remained on the back foot against EUR and CHF. Yesterday’s data flow from the US once again outlined the depth and suddenness of the economic shock hitting the economy. Weekly Unemployment Claims printed at just below 4m, bringing the total number of new jobless claims since the beginning of the COVID-19 crisis above 30 million, over 19% of the total number of employed persons in the US according to data released in March. Additionally, the Chicago Purchasing Managers’ Index was 35.4, its lowest reading since 2009. The Federal Reserve announced an expanded scope and widened eligibility for the Main Street Lending Program. Larger and less creditworthy borrowers will now be able to access $600bn in funding. The expansions to the programme include new loan options, a lowering of the minimum loan size to $500,000, and expansions in eligibility criteria. Today at 14:45 BST the final Markit manufacturing Purchasing Managers’ Index will be released for April, followed at 15:00 by the ISM manufacturing PMI.


The euro managed to resist losses against any of the G10 currencies yesterday, pushing the euro to a two-week high against the dollar. The European Central Bank has kept its Pandemic QE Programme (PEPP) unchanged but has tweaked its Long Term Refinancing Operations to make them more appealing to banks while also announcing a new facility, the Pandemic Long Term Refinancing Operations (PELTRO), starting this month. In the press conference that followed the statement, ECB President Christine Lagarde stated that the ECB will not tolerate fragmentation in eurozone financial markets, and added that the central bank will not hesitate to expand its asset purchasing programme “by as much as necessary” when needed to ensure an adequate transmission mechanism to all eurozone members.  While in the prior press conference Lagarde contended it was not the ECB’s responsibility to “close the spreads”, the ECB President’s comments this time expressed the opposite sentiment. On the whole, Lagarde’s communication during the press conference improved significantly from last time, which likely played a role in the controlled price action in EURUSD around the time of the press conference. Bund-BTP spreads widened on Thursday, but this price action may not be sustainable given the ECB’s willingness to support eurozone money markets. During the later trading hours, the pair significantly rallied on the news that the Federal Reserve will expand eligibility for its Main Street Lending Program to companies with up to 15,000 employees. This morning, EURUSD managed to go over the two-week high registered on Thursday. With the economic calendar being virtually blank for the eurozone today and many businesses throughout the eurozone area being closed because of labour day, the pair is at the mercy of incoming US data and developments in risk sentiment.


Sterling rallied further against the US dollar yesterday, as the week’s overall theme remained one of weakness in the greenback. Amid a lack of economic data or major monetary or market developments, the main sterling-relevant news flow focussed on the Government’s plans for easing lockdown measures. Boris Johnson returned to the podium for the daily Government briefing on COVID-19, and promised a roadmap for easing lockdown measures, but few specifics for markets to trade-off.  The key message was that any easing of restrictions must be done in such a way that the epidemic does not resume exponential growth. A more comprehensive plan, including guidelines for business and school re-opening, will be available next week. A variety of economic data will be released for the UK today at 09:30, including Markit’s manufacturing Purchasing Managers’ Index at 09:30, and money and credit figures from the Bank of England.


DISCLAIMER: This information has been prepared by Monex Canada Inc., an execution-only service provider. The material is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is, or should be considered to be, financial, investment or other advice on which reliance should be placed. No representation or warranty is given as to the accuracy or completeness of this information. No opinion given in the material constitutes a recommendation by Monex Canada Inc., or the author that any particular transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research, it is not subject to any prohibition on dealing ahead of the dissemination of investment research and as such is considered to be a marketing communication.