Thursday March 12th, 2020

Yet another volatile day for the foreign exchange markets as the WHO declares the virus a pandemic. The US President announced a travel ban on flights to Europe, the NBA halted games and US stimulus measures fell short of market expectations. Global equity markets remain under pressure, with the DOW officially entering “bear” market status. Oil prices continue to slide causing the Russian ruble to fall by 16% and Mexican peso by 13% on oil weakness. Most global currencies weakened across the board today with just Yen and US$ firming on safe-haven status buying. A positive note, just a single person was reported infected by the virus in China today. Intraday the focus will shift to the US initial jobless data out this morning for direction.

Oil prices weakened 5% following the surprise travel restrictions by the US President yesterday, further impacting oil supply requirements. The falling oil prices has impacted both the Canadian currency and equity markets which are both dependent on oil. The government has pledged C$1 bln to fight the coronavirus impact and suggested more stimulus in the budget at month end. C$ is sitting at its weakest level in 4 years, a break of 1.3845 could open C$ to further weakness towards 1.4100 (feb5th 2016), with the intraday base 1.3765. Oil prices remain C$’s primary driver in the short term.

Euro fell vs the US$ after the US’s surprise travel ban announcement. Investors are becoming frustrated with European leaders saying they will do “whatever is necessary”, but appearing not to follow up with actions. The focus shifts back to the ECB, which may ease policy in its rate decision today. The ECB president has warned EU leaders of a 2008-crisis if they fail to act. The current level of virus infections in Europe surpasses 21k, with Italy and other EU countries increasing restrictions. Investors will focus on the ECB rate decision and US data releases for direction today.

UK has already taken some positive actions to combat the coronavirus impact including BoE cutting rates, increased lending scheme and government stimulus. The UK PM is planning an emergency meeting, from which he is expected to announce further steps to tackle the coronavirus. GBP weakened vs the US$, but is holding current levels and will wait for UK PM’s announcement for further direction.