Into the second trading day of the week, the Canadian dollar remains on the backfoot against the pound Sterling. The open to the week was poor for the Canadian currency as the Canadian main stock market index took a tumble to nearly a 10% drop, taking CAD to a four-year low. Ottawa limited entry into the country to help fight the coronavirus spread and measures taken by global central banks failed to calm investors. Meanwhile, the pound continued to suffer from the risk of foreign investor capital drying up amid the coronavirus fears. The British currency relies on this investment to keep its strength, but when global investors run scared, the pound tends to suffer amidst a large repatriation in capital, which subsequently leads to a downside pressure on the currency. The market has noted that the pound suffers when both domestic political uncertainties are afoot and when global markets are in meltdown.
CAD Continues to Suffer; Oil Prices Tumble, and Stock Markets Collapse
With Canada’s main stock market index falling by nearly 10% and CAD hitting a ten-year low, the struggling currency looks unable to catch a break to start the week. The falling oil prices also did little to help out the Canadian currency at the start of the week with Saudi Arabia’s announcement to up oil production still hot off the press from last week, a move which will drive down the price of oil.
The US Federal Reserve and other major central banks acted aggressively on Sunday, with the Fed cutting interest rates to near zero. On Monday, the Bank of Canada announced new measures to help support key funding markets. But the action did little to support stock markets and the price of oil, one of Canada’s major exports, as investors worried that efforts to contain the spread of the virus would stall economic activity. Meanwhile, the Toronto Stock Exchange Composite Index, closed down 9.9% at 12,360.40, having hit its weakest intraday level since January 2016 at 11,883.66. The index has fallen more than 31% from its February 28 peak. The market notes that it is highly unlikely now that the Canadian BoC will wait until their next policy meeting in April to slash rates by a final 50bps.
GBP Also Takes a Hit as Coronavirus Could Drive off Foreign Investor Capital
GBP investors are hoping that the fears surrounding the virus will not be substantial enough to drive away foreign investors. However, the UK public recently reacted to the UK Prime Minister’s ‘lack of action’ concerning the coronavirus outbreak. By only taking the containment phase to the ‘delay’ phase, many were underwhelmed by the response and called for the closure of schools and airports like many other European countries.
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