News & analysis


The loonie is struggling to break-out against the dollar this morning in what is a mixed risk environment. USDCAD is sitting relatively flat while NOK, SEK, EUR all post gains, likely linked to the announcement of the EU recovery fund. Late on Friday’s session, Finance Minister Bill Morneau announced that the government was widening its eligibility criteria for its wage subsidy scheme in an attempt to ease Canada’s labour market off of the support of the unemployment programme and back into the workplace. Companies who have seen revenues drop by less than 30% are now eligible to apply for the CEWS program, but at reduced rates. Payouts are determined by the extent of their sales drop, with the previous scheme covering 75% of wages for companies that had lost at least 30% of their revenue for up to C$847 per employee per week. The scheme has been extended from August to December and eligibility criteria has been loosened. This was half expected by markets after the Trudeau government topped up the CEWS scheme by around C$20bn when the fiscal snapshot was released. Currently, one in four private sector employees is said to be on the wage subsidy programme. Despite the increased stimulus aimed at limiting the scarring to Canada’s labour market, a sluggish oil price is weighing on the dollar. The plethora of localised lockdown measures about to be announced in places like Rome and Los Angeles are adding to concerns over another demand shock. WTI currently sits just above $40 per barrel. This week, Canadian CPI is in scope for markets after the Bank of Canada announced a lower for longer regime for monetary policy last week. Statistics Canada are still battling with shifting consumer tastes, meaning the adjusted CPI rate will be as important as the headline and core readings that markets are accustomed to. Before the CPI report on Wednesday though, the Canadian dollar faces up to Bloomberg Nanos Confidence data today at 08:00ET and retail sales data for May tomorrow at 08:30ET.


The greenback opened the week on a somewhat positive note against most major peers as several cities over the globe tightened restrictions to contain the rising number of virus cases. Hong Kong and Melbourne extended mandatory mask-wearing to more public spaces after Sunday saw a record number of new cases of 108 in Hong Kong and 275 in Victoria state. A Democratic representative in the US described Florida’s outbreak as being “totally out of control”, while the mayor of Los Angeles stated his city is “on the brink” of new tightening of measures. Altogether, the developments over the weekend took a toll on risk sentiment, offering the dollar a modest boost this morning. Today, discussions over a new coronavirus stimulus package are set to start at the White House with Senate Majority Leader Mitch McConnell, Treasury Secretary Steve Mnuchin and others. The meeting comes as several of the currently operational emergency measures, such as the federal unemployment benefits, are set to expire at the end of July. With the US calendar featuring few events today, this leaves the stage to the fourth day of EU talks and further developments in risk sentiment, while PMI releases are eyed later in the week.


While the euro started the week lower at Monday’s open after the EU leaders failed to unlock an agreement on the €750bn recovery fund during their summit on Friday and Saturday, the currency found support in anonymous reports this morning that the frugal four countries are now satisfied with €390bn of the fund coming in the form of grants. The initial proposal included a total of €500bn to be allocated in grants, but the leaders failed to find a compromise on the overall size over the weekend. Germany and France insisted that at least €400bn should be granted, while Rutte and four other fiscal hawks pushed for a much lower amount.  The talks will resume at 4pm CEST today to settle outstanding issues such as the size of the fund, the mechanisms for controlling its spending and the conditions attached. Although the euro is currently trading at its highest level since March, the currency remains under the spotlight of the talks, as investors’ hopes for a breakthrough are increasing and the euro is now vulnerable to the downside if no deal is reached. The extension of the talks to a fourth day however shines a glimmer of hope that a consensus may be reached. The eurozone joins the US and UK with Purchasing Managers’ Index releases this week, with the eurozone’s turn being on Friday. As today is a light day on the eurozone’s data front, all eyes are turned to the resumption of the EU talks this afternoon.


Sterling struggled to build consistent momentum against the dollar last week, and despite several short lived rallies closed the week broadly flat against the dollar, and lower against the euro. The pound is once again trading with a note of optimism this morning, and is trading higher against both the euro and dollar, although the durability of the rally remains to be seen. US secretary of state Mike Pompeo is in the UK today and tomorrow, and is expected to discuss Hong-Kong issues, coronavirus, and most importantly a potential trade deal. Tomorrow morning, the Office for National Statistics will release public borrowing data for June, after May’s data showed that the total size of the public debt had exceeded gross domestic product for the first time in more than 50 years. Bank of England policymakers Andy Haldane and Silvana Tenreyro will testify on their reappointment to the Treasury Committee today from 16:00 BST onwards, and later in the week flash Purchasing Managers’ Indices will be released on Friday.



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