USD/CAD topples the 1.40 handle as dollar bloc gets hit by COVID-19 fear

• USD/CAD cuts into the 1.40 level as the dollar bloc take the brunt of commodities in decline.
• COVID-19 is biting its way into global economies, weighing on the outlook for commodities. 

In a busy start to the week, USD/CAD rose 2 cents to 1.4000 as the COVID-19 pandemic takes its toll on a world now in shutdown, sapping energy demand and sending oil to camp out below $30 a barrel. 

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CAD is trading at its weakest point since Feb 2016 and at the time of writing, USD/CAD trades at 1.40 on the nose within a range of 1.3997 and 1.4018. The dollar bloc, meaning, CAD, ADU and NZD, have all been under pressure as the commodity sector takes a turn for the worst as industries and global trade dry up. More on that here: Commodities to weigh on commodity-FX, watch copper suffer COVID-19

"Crude markets continued their dramatic collapse with WTI currently trading below $29, down 9.74% on the day and Brent at $29.51 down 12.79%. The NYMEX RBOB gasoline contract fell another incredible 22% on the day, taking the active contract below the lows seen in the depths of the GFC," analysts at Westpac explained.

"A key driver for the drop below $30 was the Saudi Aramco earnings call where the CFO said the company is “very comfortable with oil at $30”. As a measure of the collapse in demand for Brent, the active contract Brent spread to WTI closed at just 59c. This time last year it was close to $7."

Meanwhile, the G7 released a joint statement on their “whatever is necessary” measures to support global trade, investment and jobs while coordinating health research to combat coronavirus. The IMF declared a USD 1 trillion funding/loan facility was available to assist in fighting COVID-19. They also underscored the need for synchronised fiscal stimulus is growing “by the hour”. The Eurogroup also released a statement following the finance ministers meeting. More on that here: Eurozone finmins agree fiscal boost worth 1% of GDP to fight effects of coronavirus epidemic

BoC in focus

Following the Fed's series of emergency cuts and a move to QE in the US, markets are now looking to the Bank of Canada. However, TD Securities explains: "There is no indication that the BoC will feel pressure to immediately follow suit. We continue to pencil in 50 bps of easing at the April 15th interest rate announcement."

The analysts added, "at the same time, one month is a long period of time in the current market context, and recent Fed action increases the likelihood of an additional 50 basis point ease by the BoC this month. Ultimately, behaviour in financial markets will dictate the Bank of Canada's next move, and if pressures continue to rapidly build the BoC could cut rates in very short order."

USD/CAD levels