What we can do is look to the Bank of Canada and the Federal Reserve as they meet in September and give their guidance. Reported COVID-19 cases are on the rise again across the world, and so the light at the end of the tunnel is getting ever smaller for almost all major economies. In such uncertain times, it’s impossible to accurately predict what’s in store. So, while the volumes we traded troughed in March and April, there are promising signs that companies are adapting to the new normal. Government programs rolled out in April to support small and medium sized businesses certainly boosted business confidence and as we all adapted to the work-from-home shift, it started to feel a lot more ‘business as usual’. But the drop in volume may also be attributed to companies the world over sitting on their invoices, holding their cash for more important matters, like making month-end payroll, while they tried to figure out how their business would navigate a complete shutdown of offices.
Quite when that will be is anyone’s guess right now. Unsurprisingly, one of the worst affected industries has been travel and related services – an industry that ought to bounce back strongly just as soon as a vaccine is approved for general release. At the beginning of the COVID-19 lockdown, we saw our trading volumes in all regions decline. The industries we serve are vast and varied. As a global company, we help clients across the world to buy or sell their currencies and, importantly, manage their risk with hedging strategies. It’s fair to suggest that AFEX is something of a barometer for global business trends. Those of you who costed the USD/CAD exchange rate at, say, 1.3500 at the start of this year, would have found yourselves in a nasty offside position – with the cost of your US products or services increasing dramatically. On the flip side, Canadian companies are typically more exposed to the value of the US dollar. Members in the US, who buy their products or services from Canada, would have enjoyed enormous discounts – buying their Canadian dollars at the cheapest level seen since 2003. Members of MAPLE Business Council sit on both sides of the market. In short, the Fed’s shift in inflation policy should keep US rates near zero for the foreseeable future, keeping the US dollar relatively weaker, since they are in no rush whatsoever to raise interest rates regardless of the speed of recovery for the US economy. Federal Reserve Chairman Jerome Powell outlined an “accommodative policy change” that is believed could result in inflation moving slightly higher, and interest rates staying lower for longer. A prime example of this is the current sell-off of the US dollar, back to pre-COVID-19 levels. While market traders traditionally look to economic data (GDP, inflation, unemployment figures, retail sales, consumer and business confidence, etc.) to determine the strength of an economy and, therefore, the strength of a currency, we’ve seen a big shift to general sentiment affecting currency rates.
With the initial shock and awe subsiding, the Canadian dollar’s impressive recovery saw the interbank market rate retrace to just a few dozen ‘pips’ over 1.3000 again. When the markets are gripped with uncertainty, the US dollar strengthens as traders rush to ‘safe havens’.īy the end of August 2020, USD/CAD had settled back to the levels we saw in a COVID-19-free world. With the United States reporting record job losses – millions upon millions of Initial Jobless Claims piling up each Thursday – and with the Federal Reserve taking no time in cutting benchmark interest rates from 2% to 0.25% (and thus diminishing the dollar’s investment appeal against most other major currencies), the US dollar would, in normal times, have weakened. USD/CAD trading chart, Jthrough September 14 2020.
Having sat in a trading range of around three percent, the loonie weakened against the greenback by a full ten percent in early March 2020 – spiking all the way up to 1.4660. Back to levels not seen in over a decade, since the Global Financial Crisis of 2008. Markets panicked and plummeted, Central Banks slashed interest rates and commodity currencies such as the Canadian dollar were hammered, as oil prices briefly went negative. All very serene and, dare I say from a currency trader’s perspective, dull.Īs more news started to filter out of China of a new and deadly strain of coronavirus in January of this year, and governments across the world realized that its spread was rapid and far-reaching, we found ourselves in an unprecedented lockdown. For the second half of the year, USD/CAD exchange rates bounced around in a tight range and struggled to break below 1.3000, or higher than 1.3350. West Coast, AFEXĢ019 was a relatively calm year for currency markets. By: Robert Bollé, Regional Manager - U.S.