US Dollar, Canadian Dollar, USD/CAD, Crude Oil, Coronavirus – Asia Pacific Market Open
- USD/CAD eyeing 2016 highs as crude oil prices approach the 2016 bottom
- US Dollar soared on liquidity demand, cash shortage amid the coronavirus
- Canadian Dollar may fall, S&P 500 futures pointing lower into APAC trade
Tuesday’s Recap – US Dollar, Canadian Dollar, Crude Oil, Fiscal Stimulus, Coronavirus
The US Dollar was the best-performing major currency on Tuesday as the Canadian Dollar continued its downward trajectory. A combination of high demand for preserving capital and concerns over a USD shortage amid the coronavirus outbreak likely boosted the haven-linked Greenback. This is as crude oil prices crumbled towards the 2016 bottom with global travel grinding to a halt to stem the virus pandemic.
Oil is a key source of revenue in Canada and low prices can amplify concerns over deflation on top of brewing risks of a recession. This arguably places CAD in a tough spot. Still, equities saw a bounce by the end of the North American trading session which oil prices were unable to capitalize on. The Dow Jones and S&P 500 closed 6.0% and 5.2% higher respectively.
Market optimism picked up pace on a combination of aggressive fiscal and monetary stimulus efforts. For the former, U.S. President Donald Trump was seeking $1k in direct payments for citizens. He is hoping that these could arrive in 2 weeks. This is as Treasury Secretary Steven Mnuchin noted that he and the White House were in talks about a stimulus plan that could amount to as much as $1.2 trillion.
Meanwhile the Federal Reserve continued to push measures to help keep credit markets lubricated and boost liquidity. The Fed announced that it will establish a commercial paper facility and a primary dealer credit facility. This is as the country reported coronavirus cases in all 50 states. Worryingly, February’s retail sales report (excluding auto) showed transactions dropping unexpectedly -0.4% m/m unexpectedly. That was the most since December 2018 and more troubled waters could be ahead.
Other key developments over the past 24 hours:
- Delta Air Lines may be cut to junk by Moody’s
- Majority Leader Mitch McConnel says the Senate will vote on house virus aid bill
- European Union leaders agreed to close borders to travel
- Fed said to review easing bank leverage and accounting rules
- Daimler suspended most of European production for an initial 2 weeks
- Coronavirus reported in West Virginia, cases now in all 50 states
Wednesday’s Asia Pacific Trading Session
While Wall Street ended on a positive note, S&P 500 futures are pointing lower heading into Wednesday’s Asia Pacific trading session. A lack of notable economic event risk arguably places the focus on sentiment for foreign exchange markets. If risk aversion prolongs, the US Dollar could continue to see gains. A decline in crude oil would also leave the Canadian Dollar vulnerable. The anti-risk Japanese Yen may gain.
Canadian Dollar Technical Analysis
USD/CAD’s uptrend continues at an aggressive pace with prices climbing towards the 2016 high. “Inner Support” on the daily chart is maintaining the uptrend with “Outer Support” sitting under. Negative RSI divergence does show that upside momentum is fading. If that precedes a turn lower, keep a close eye on the 23.6% Fibonacci extension at 1.3980 followed by the immediate rising trend line. These may put a pause to near-term declines.
USD/CAD Daily Chart
Chart Created Using TradingView
--- Written by Daniel Dubrovsky, Currency Analyst for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter