Wednesday March 4th, 2020

Investors were surprised by the FEDs 1/2% cut in interest rates on Tuesday and disappointed with the G7’s lack of specific responses to the coronavirus. Equity markets weakened on the rate cut news as investors worry that the cut won’t be enough to combat the coronavirus’s economic impact. US$ after initially weakening yesterday has rebounded vs most currencies and is sitting at similar levels pre-rate cut. A surprising win for former VP Biden in super-Tuesday gave the US$ a small boost, as investors prefer a business-friendly candidate to lead the democrats. Quite a lot of US data releases today, including US Non-Manufacturing PMI will provide intraday direction.

Oil prices firmed as OPEC presses Russia to support its supply cut proposals ahead of the OPEC meeting this week. C$ failed to gain much traction from the US Fed cut and waits to see how the BOC will respond. The market expects the BOC will cut rates at todays meeting, possibly up to 1/2%. 1.3315 remains the key support level for US$ vs C$, if BOC does not cut rates we would expect C$ to rally. BOC actions, oil prices and US data will all be watched closely for C$ directions today.

Euro’s initial rally on the Fed rate cut faded and the currency has steadily sold off and is retesting the low 1.11’s. The big question now is will the ECB cut rates? Will Germany loosen its fiscal policy? If Germany adopts fiscal policy changes the Euro has the potential to significantly rally. We anticipate the ECB may hold off any actions until its scheduled meeting in two weeks, which may be too long for Investors. Intraday the Coronavirus developments and US data releases for will provide direction today.

GBP firmed this morning despite speculation that the BOE will follow the Fed in announcing rate cuts to mitigate the effect of the coronavirus crisis. BoE Governor told lawmakers on Tuesday he expected a “powerful and timely” global response and said the BOE is ready to act to support the economy. Intraday BOE’s response and US data will dictate intraday direction.