News & analysis


The decline in WTI prices didn’t weigh on Western Canada Select oil as the drop was purely a quirk in the delivery date of the WTI futures curve that was exacerbated by ETF’s priced off of them. Western Canada Select oil, from Canada’s oil sands, actually rallied to $9.22 a barrel yesterday after dipping below $5 last week. While the Canada specific benchmark usually trades at a discount to WTI due to its lesser quality, it highlights how specific the move in crude was in WTI due to the nature in which it is quoted as a benchmark. With this in mind, the collapse in the price of WTI for May delivery had a limited impact on the currency market. The most it contributed to was an increasingly risk-off tone, but the oil benchmark’s collapse did little to cause a substantial rout in petro-currencies such as CAD and NOK. For the most part, these currencies have already priced in the low level of oil and its likely repercussions on growth and government finances as the industry is put under increasing pressure. The loonie did feel the pressure of the global risk-off move though, falling just shy of 1% against the dollar. The loonie has started today on the back foot along with the rest of the G10, with the exception of JPY,  as the dollar goes bid across the board.


The dollar strengthened overnight, after the widely traded West Texas Intermediate benchmark for crude oil delivery saw astonishing declines in prices for delivery next month. Although the declines in crude oil did trigger some weakness in selected oil currencies and a weak risk-off move, the technical nature of the oil move meant it did not have a large effect in other macro markets as may otherwise have been expected. At one point, the May contract was trading at -$40 a barrel. Although the fall was fundamentally driven by historic oversupply conditions, yesterday’s collapse seems to have been caused by a quirk of the deliverable market. With the May contract expiring today, holders of the contract are obliged to take delivery of the physical oil – something many market participants may struggle to do, particularly with local oil storage facilities approaching capacity. As a result, speculative market participants found themselves holding contracts they were unwilling to take delivery of, while commercial participants such as refineries, were not willing to buy the crude due to weak demand conditions and large stockpiles. Holders of the contracts who were unwilling to take delivery were therefore left with no buyers – and had to pay others to take the contracts off their hands, instead of being forced to take delivery of the oil. The June contract for crude continues to trade above $20 a barrel, suggesting participants in this market are for now assuming a similar situation will not ensue next month, due to a combination of reduced supply and improved demand or storage conditions. Similarly, contracts for delivery later in the year are trading above $30 a barrel, further reinforcing the idea that for now markets are expecting conditions to improve in the second half of the year. Yesterday’s carnage in the May contract will add pressure on US state regulators in Texas, who will meet today to discuss possible output restrictions. A similar review is ongoing in Oklahoma. The data calendar today is relatively sparse, although existing home sales data for March will be released today at 16:00 BST.


The euro was already trading on the back foot against the dollar overnight before the rout in oil markets reignited safe haven flows, pulling the pair down further. This morning, the euro struggled to recover its losses from last night against the dollar, a move that was matched by most other G10 currencies. EU Commissioner Thierry Breton stated in an interview with RMC radio this morning that the Schengen area may remain under travel restrictions until the summer, and a gradual end of the lockdown across the region may be implemented district by district. Breton said that the EU should spend €1.6 trn, or 10% of its gross domestic product, to combat the economic downturn of the Covid-19 crisis, broadly comparable to other major economies such as the US, UK, Australia and New Zealand. The currency remains under pressure as the outcome of Thursday’s EU summit continues to stay uncertain. Today’s economic calendar includes sentiment data from the German ZEW survey release. The median forecasts submitted to Bloomberg for the current situation deteriorated to -77.5 from -43.1 in March, while forecasts for the 6-month expectations are at -42.0, a slight improvement compared to the prior reading of -49.5.


Sterling weakened to the US dollar overnight, after also softening slightly yesterday. In one of his first policy moves after recovering from Covid-19, Boris Johnson reportedly told senior colleagues that the UK must be cautious in easing lockdown measures, to avoid a second peak in cases. The comments come amid speculation that various elements within the Government may be lobbying to begin looking at re-opening the economy. The Prime Minister is expected to lead the Government’s decision making in easing lockdown by the first week of May. This morning’s release of UK labour market data was largely beside the point for sterling, as the data pertained to February and periods of March before lockdown measures were implemented. The data showed the UK unemployment rate slightly higher at 4%.

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