Canada’s fiscal stimulus has been released and comes close to that seen in Australia with a whopping 3% of GDP set to be pumped into the economy by the government. USDCAD seemed unfazed by the news of the fiscal splurge, however, which has tripled in size over the last 24hours from what government officials previously touted.
Worryingly for spectators, PM Trudeau sidestepped questions about whether the Canadian economy is set for a recession, which it undoubtedly is in the current climate. USDCAD continues to climb higher towards levels not seen since 2016, with the high of 1.4690 now in scope.
The Bank of Canada Governor Stephen Poloz and Finance Minister Bill Morneau are currently giving a joint press conference, but the fact that the Bank of Canada’s PR team decided to prime markets that no fresh policy would be announced reiterates the tentative nature of financial markets at the moment.
Today’s USDCAD price action doesn’t just reflect the increasing race for dollar liquidity seen in markets at the moment, but also the worsening outlook for the Canadian economy. This is also represented by the depth of the fiscal stimulus seen this afternoon and the rapid intervention by the Bank of Canada into Canadian mortgage markets as they purchased some $46bn in mortgage bonds yesterday. shortly after saying they merely stood ready to intervene.
Stimulus measures by governments and central banks alike have rapidly increased over the last few weeks, highlighting the extensive nature of the current economic shocks to markets.
Pricing in oil markets is also weighing on the loonie. WTI fell below $25 for the first time since 2003 this morning, with pricing in Western Canada Select crude oil falling to a record low of $9.19 today after oil-sands producers were forced to delay maintenance, increasing supply in a market which is currently battling with a severe demand shock.
It isn’t all doom and gloom, however. The fiscal measures enforced today are substantive and were regarded as “phase one” by Morneau in the press conference. With the Canadian government’s balance sheet being the “envy of the world”, the Finance Minister stated that the scope for further fiscal stimulus is large, which is likely to boost the Canadian economy back to trend growth once the containment measures ease and the virulence of COVID-19 bottoms out.
Some of the details of the fiscal stimulus package;
- $27bn fund for directly supporting businesses and workers (roughly 1% of GDP)
- $55bn in tax deferrals for individuals and businesses – taxes won’t be eligible for payment until August 2020
Western Canada Select crude hits record low
USDCAD drives to 2016 high of 1.4690. Further loonie weakness hasn’t been seen since 2003
Author: Simon Harvey, FX Market Analyst at Monex Europe.