Both the Canadian dollar and the pound Sterling saw abysmal performances last week, which earned CAD the title of the worst performing currency of the week, with GBP not too far behind it. Last weeks Bank of Canada 50bps rate cut shocked the market and sent the currency tumbling. In reducing its yield advantage just as the bottom fell out of the oil market once more, the struggling risk-related currency is set for further declines in the upcoming week. Meanwhile, the UK spent most of last week concerning itself with the mass quarantine of the Lombardy region of Italy as it saw its own confirmed cases of the disease rise through the week. With the figure now way above 200 cases, the UK currency is set to face more pressure as this total continues to rise through the week. However, GBP could be offered some support on Wednesday as the budget release could pose upside risks to the pound Sterling.
BoC rate cut and falling oil prices set to spoil CAD’s week
Earning the title of worst performer of the week, the Canadian dollar has some ground to make up from last weeks performance. However, the market is suggesting that the currency is likely to continue to struggle up ahead as the BoC’s shock 50bps rate cut to 1.25% snatched away any remaining strength that the Canadian currency had left. This rate cut also came as oil prices declined nearly 10%, with Brent crude falling more than 9% last week with WTI futures prices tumbling -7.17% following some of the worst oil price declines since the financial crisis, The market has predicted that the two could fall further in the week to come which could potentially take CAD down with them.
The coronavirus is also set to continue its wrath of destruction on the Canadian currency as the Italian quarantine could be viewed by markets as denting the Italian, Eurozone and global growth outlooks which could lead to a drop in oil prices. With oil being Canada’s largest export, the price highly correlates to the performance of the currency. The outlook for the Canadian dollar looks shaky as BoC governor Stephen Poloz noted last Thursday that the BoC will cut its cash rate further if needed to support growth and keep inflation on target.
Coronavirus also haunts GBP but budget release could help the UK
The coronavirus also continues to haunt the pound as the number of confirmed cases in the UK rises to above 200. The mass quarantine of the Lombardy region of Italy also caused some cause for concern as markets note that the spread of the virus could lead to dampened business activity and spending by households. Wednesday’s budget will be closely scrutinised as the Treasury will reveal its plans to support the economy as the government fights with the coronavirus. Fiscal policy is likely to be the weapon of choice to combat the economic impact of the virus up ahead, so a positive portfolio from the Treasury could help boost GBP mid-week.
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