News & analysis


The Canadian dollar struggled to find a firm footing in yesterday’s market as shifting risk sentiment failed to provide much direction. The loonie enjoyed the positive sentiment around North America in the risk-off environment in the morning of yesterday’s session, but as the dollar was placed under pressure, so was the loonie. Very little has come from the Canadian economy in terms of news so far this week, with the most notable headlines stemming from Prime Minister Trudeau’s 3-month extension of the Business Loan Program. Under the extension, companies now have until June 30th to apply for C$60,000 in interest-free loans, of which up to C$20,000 is forgivable. More than 850,000 businesses have used the credit program as of March 18, for a total of C$45bn. Today,  Bank of Canada Deputy Governor Gravelle is due to speak at 17:15 GMT on the role of the BoC in responding to market-wide stress. Fresh commentary around the BoC’s QE programme may be provided given its initial role was to improve market functionality in the immediate aftermath of the pandemic.


After starting the morning session firm with risk sentiment on the ropes after events in Turkey over the weekend, the dollar spent the rest of the day trading on the backfoot. Risk appetite began to improve throughout the session as global yields continued to drop. This morning, however, news of additional fiscal stimulus in the US is propping up the greenback. Preliminary estimates of Joe Biden’s infrastructure plan place the price tag at around $3trn. The news of additional fiscal stimulus in the form of “build back better” only adds to the narrative that the US economy is likely to outstrip G10 peers in the speed of its recovery this year. The news of a faster economic recovery adds fuel to the speculation that the Fed will have to normalise policy earlier than it is currently signalling, however, moves in fixed income markets this morning don’t show these expectations being fanned in fixed income markets just yet. This is likely due to the fact that Biden’s fiscal stimulus plans will face greater resistance this time around as the reconciliation process isn’t available, meaning 60 votes in the Senate is required – 10 shy of the amount the Democrats hold. The plans will, therefore, have to be agreed by Republican senators even though part of the spending is being financed by higher tax rates for corporations and the wealthy. Today, a wedge of Fed speakers are due to release fresh communications. The most notable include Chair Powell before the House Panel on CARES Act at 16:00 GMT, who is joined by Treasury Secretary Yellen, while Brainard is set to speak on the economic outlook at 19:45 GMT.


The single currency rebounded from early losses to close 0.45% higher on the day yesterday. Contagion from Turkey’s currency crisis looked contained relative to previous episodes, while diplomatic battles with the UK over vaccine deliveries didn’t weigh on eurozone sentiment either. Instead, the environment of moderating yields benefited the single currency, as eurozone yields remain pinned at a substantially lower rate largely due to the increase in purchases under the ECB’s PEPP. The ECB delivered on its promise to increase PEPP purchases last week, with data on Monday showing €21.2bn net purchases were settled – the largest amount since December. This morning, however, the single currency trades 0.3% lower against the dollar, while its fortunes remain better than the pound to provide further downside in GBPEUR. News that Germany is imposing a five-day lockdown over Easter shortly after extending current lockdown measures until April 18th is weighing on the bloc’s growth outlook and European assets thus far in the European session.


After testing to break lower yesterday as vaccine tensions and the threat of Europe’s third wave landing on Britain’s beaches weighed on sentiment, the pound managed to cling-on as broad USD weakness kept GBPUSD afloat. However, sterling’s losses weren’t contained against the euro. GBPEUR finished the session 0.3% lower after dropping as much as 0.54% on the day. This morning, however, sterling is under renewed pressure, but this time from the broad dollar. Sitting 0.43% lower this morning, GBPUSD’s price action doesn’t look out of place with most of the G10 currencies sitting in the red. This morning’s data saw January’s 3-month average unemployment rate fall from 5.2% to 5%, largely due to a rise in inactivity. However, the signs of the furlough scheme doing its job are visible in the data, with the emphasis now placed on the government to reopen the economy such that the labour market can start to fully recover. Today, both BoE Governor Bailey and chief economist Haldane are set to speak, but not on issues that will move markets. Meanwhile, MPC member Cunliffe is set to speak at the BIS panel at 09:55 GMT.


The kiwi dollar sits firmly at the bottom of the G10 pile this morning after Prime Minister Ardern announced that the government will remove tax incentives for investors to make speculative purchases in the housing market less lucrative and unlock more land to increase housing supply. One of the key measures announced is the phasing out of the ability for investors to claim mortgage interest as a tax-deductible expense, while it will extend the period in which profits on the sale of investment property are taxed to 10-years from five. Both measures aim to cool a housing market that is teetering on the edge of becoming an asset bubble. House prices surged 21.5% in the year through February with investors accounting for more than 40% of purchases that month. These announcements are weighing on the kiwi dollar as it trims expectations of the Reserve Bank of New Zealand hiking rates. Previously, housing market considerations were included in the RBNZ’s mandate, prompting financial markets to start pricing an earlier normalisation cycle from the central bank. However, today’s move by the government to cool the housing market is causing these expectations to partially unwind.



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