Today's FX Comment

March 16, 2020

Good morning.

Well, the Fed has done their part and I'm sure President Trump is more pleased with Powell than ever before with rates back pretty much to zero. The market of course remains very jittery and will most likely remain that way for the next few weeks at least as:

- no doubt the number of Corona virus cases will rise

- question marks remain around how long and how in depth any lockdown will be

We'll hear from the G7 later this morning as world leaders look for a more coordinated response to the virus but it may be more about closing borders and sharing information/research than about any kind of fiscal stimulus. In the meantime the headlines will be more and more negative and people will become more and more nervous.

Of course the Fed was not alone in their actions, the BOC, BOJ, BOE, ECB and the SNB have ramped up swap lines, the RBNZ cut rates by 75bps and the BOJ has raised its ETF purchase target. The central banks are providing liquidity and trying their best but it will take the added boost of massive fiscal stimulus and some better news headlines to turn this situation around. We may be weeks away from that. In the meantime your typical safe haven FX plays are outperforming with both the Swiss and the Yen higher on the day. Little surprise the commodity currencies have taken the brunt of the bad news as concerns over global growth mount.

Thoughts:

USDJPY - It will be a battle, risk will be under pressure and therefore the market will want to sell USDJPY while on the other hand the BOJ knows the last thing they need is a stronger currency and will do what the can to prevent strength. In the end USDJPY will remain a sell on rallies.

EUR - The market is still short Euros and typically in times of stress shorts get squeezed. Longer term I am not bullish Euro but the market usually goes where it hurts the most and the means higher here.

AUD - QE is coming from the RBA as the very soft data we saw out of China last night does not bode well for the Australian economy. At some point the Oz will be a buy - maybe when the Chinese economy returns to full force but we're a long way from that point. The GFC low of .6009 remains firmly in sight.

USDCAD - I have said it before and I have to say it again, when equities and oil are under pressure the Canadian Dollar usually does not do well and I think this is no exception. We may be in a bit better shape then Australia as our economy is tied to the U.S. rather than China like Australia's is but no doubt about it a slowdown in global growth is not a good thing for Canada nor the currency. I think you have to keep buying dips in USDCAD for the time being. Just remember the dips may be large as liquidity is spotty. I see 1.4100 as the topside target while we should find bids around 1.3780 and 1.3660.

Good luck.