News & analysis


The loonie’s 1.22% rally yesterday was its largest positive one-day move since March 25th, as oil markets rallied and the dollar weakened across the board. Positivity around US-China relations pushed the dollar onto the back-foot and with oil prices rising to fresh monthly highs, the loonie joined over open economy G10 currencies to take over a percentage point back from the greenback. Today, the Canadian dollar faces one of its biggest challenges to date – the April Labour market report. March’s release, due to the timing of the implementation of containment policies, didn’t fully incorporate the overall impact that COVID-19 had on the labour market. Today, the figures are expected to be more telling. Expectations currently sit at a 4m increase in net unemployment, which equates to an unemployment rate of just over 18%. With the Canadian labour market report coinciding with the US Nonfarm Payroll data, some of the edge may be taken away from a bleak data reading in Canada should the US reading follow suit. Despite anecdotal evidence priming expectations for a shocking reading, and with US jobless claims doing the same in the US, heightened market volatility is still expected around the event. This morning, the loonie sits in the green, but this may not be the case later on in the session.


The greenback fell for a second day against the majority of the major currencies basket. The dollar was weighed down by dovish commentary from Federal Reserve officials, who raised concerns among investors that negative interest rates may be put on the table. For the first time ever, Fed fund futures are pricing in negative rates for later this year, despite the Fed having repeatedly stated before that it does not view negative rates as an appropriate measure. The pricing of negative monetary policy rates, combined with the surge in weekly initial jobless claims by another 3.2 million on Thursday, pushed the 2-year Treasury yield to a record low. Meanwhile, renewed US-China trade tensions seem to have cooled off considerably. A statement released after a conference call held by the US Treasury Secretary Steven Mnuchin, Trade Representative Robert Lighthizer and China’s Vice Premier Liu He included that “both sides agreed that good progress is being made on creating the governmental infrastructures necessary to make the agreement a success”. The two nations also agree that “in spite of the current global health emergency, both countries fully expect to meet their obligations under the agreement in a timely manner” and will continue the talks on a regular basis. All eyes are now turned to today’s Non-Farm Payrolls at 13:30 BST. Economists surveyed by Bloomberg expect the US to have lost 22 million jobs in April, the largest expected drop on record.


The euro was a mixed bag against the major currencies yesterday, with safe havens trading in the red against the single currency, while petro currencies like NOK and CAD and riskier antipodean currencies made gains against the euro, signalling an increased risk-on mood. Yesterday’s webinar by ECB President Christine Lagarde included comments on going beyond conventional policies to combat the COVID-19 crisis as the current circumstances are “exceptional”. The remarks came only two days after the German Federal Constitutional Court ruled that the ECB’s QE programme of €2.7 trn may not be in accordance with EU law. Lagarde stated that “we have to take all possible measures and policies to weather the shock”, as “we have the most unprecedented economic crisis in peacetime”. Lagarde’s comments add to what was said earlier on Thursday by Vice President Luis de Guindos, who stated that the central bank is ready to expand on monetary stimulus and that the ECB is “more determined than ever” to support the eurozone economy. This morning, the euro lost some of its ground in the G10 space but managed to find its footing against the US dollar ahead of the Non-Farm Payrolls. This morning’s economic calendar included German trade data from March which showed a plunge in exports by 11.8% compared to an expected drop of 5.0%, while imports also decreased by 5.1% compared to the 4.0% estimated drop. ECB President Christine Lagarde will open a conference organised by the European University Institute this afternoon at 12:00 BST to address economic policies for the aftermath of COVID-19.


Sterling battled with itself yesterday after the Bank of England rate announcement. While the dollar softened across the board on the prospect of a  de-escalation in US-China tensions, the latest Bank of England economic projections and commentary over further stimulus kept sterling pinned down. The Monetary Policy Report highlighted that the UK economy would contract by 14% this year, before a 15% bounce back in 2021, while newly appointed Governor Andrew Bailey continually highlighted that the BoE had one final meeting in July before the current QE program ends. Headlines concerning Bailey’s comments were more concerning for the pound as the Governor practically told markets to expect further QE at the next meeting. Such a move would expand the largest QE round on record and the Bank already openly purchasing UK bonds through the primary market. Over the weekend, markets can expect further clarity on the UK’s exit plans, while today the UK enjoys a bank holiday to celebrate VE (Victory in Europe) day and remember those who served in the second world war.



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