News & Analysis


Crude oil markets recovered by double-digit percentages last week, allowing the loonie to rally alongside. This morning, the loonie continued to edge higher against USD along with the Norwegian krone and Australian dollar as increased risk sentiment continued to drive markets, and led to a 1-week low in USDCAD. Oil prices are paring back last week’s rally this morning, with WTI trading flat while Brent prices have slightly fallen. This week’s economic calendar contains manufacturing sales from March, the BoC’s financial system review and a following press conference by BoC’s Governor Stephen Poloz discussing the review, all scheduled on Wednesday. This will be Poloz’ final speech as Governor before his term ends in June.


The dollar is trading with a mixed tone this morning; risk appetite has slightly improved and pushed riskier currencies like NOK, AUD and CAD in the green against the US dollar, but dollar price action against other currencies in the G10 basket makes for a less straightforward story.  Over the weekend, several Federal Reserve officials commented on the economic recovery outlook. Vice-Chair Richard Clarida and Minneapolis Fed President Neel Kashkari discussed that the fall in the US labour market is likely to be worse than the already dreadful data suggests. Atlanta Fed President Raphael Bostic hinted at the need for more easing and stated that “Congress may need to step up with more fiscal relief to ensure households and businesses aren’t only relying on debt-creating aid”. Additionally, he stated that “we have limits as to what we can do and how much support we can offer. I think it’s an open question as to how much more is going to be needed”. Fed Chair Jerome Powell will speak on Wednesday this week at a Peterson Institute for International Economics webinar and is expected to address both his economic outlook and monetary policy. There have been speculations in the past week that negative interest rates may be put on the table, partly because of dreadful industry data but also because market pricing has indicated negative rates for the first time in history. Inflation on Wednesday and retail sales on Thursday will be the week’s two main released for the dollar.


The euro opened in the green against the US dollar this morning as improved risk-appetite drove currency markets following lockdown easing prospects. Last week’s ruling by the German Constitutional Court on the ECB’s bond-buying programme threw a curveball at markets and is likely continue to attract market attention for the time being. This morning the focus in news headlines is a possible legal response from the European Commission and the wider implications of the decision for the EU legal order. European Commission President Ursula von der Leyen stated in a letter this Saturday that Brussels was considering legal actions against Germany. If not managed or abrogated, the decision risks undermining the unity of European law, and since the decision politicians from Poland’s ruling Law and Justice Party made various statements suggesting it was relevant in Poland’s own disagreements with the EU over domestic judicial reforms. France will ease lockdown measures today with the opening of shops, factories, and some schools. The week’s main data release for the euro will be German gross domestic product for the first quarter, on Friday.


Sterling started the week relatively flat against both the US dollar and the euro despite ample news flow and a busy data calendar. Over the weekend, Prime Minister Boris Johnson laid out a tentative plan for easing restrictions. The UK was the first country worldwide to pass 30,000 coronavirus deaths after only seven weeks, and that by itself is enough reason for Johnson to leave the lockdown in place but solely adjust its flexibility. Among the measures announced yesterday was official guidance to return to work, for those who cannot work from home. This represents a departure from previous, stricter guidance to stay at home, and is aimed at allowing more economic activity to blunt the severe recession that is developing. From May 13 onwards, people may leave their houses for outdoor time without restriction, although the social distancing rule of 2 meters will still apply. Anyone disobeying the social distancing rules risks a fine starting at £100, up from the previous £40 fines. From June 1, shops and some primary school grades will gradually reopen, while the hospitality industry is expected to reopen between July and August, depending on how well they can accommodate social distancing rules. Although today’s economic calendar is blank for the UK, Wednesday’s first-quarter GDP data will start to give an impression on how much economic damage is and can be inflicted by the lockdown. Data from the second quarter is likely to be even worse than this week’s, due to lockdown measures being in effect for a longer period of time than in Q1.



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