Oil markets pared back some losses this morning on a report that China is moving forward with plans of purchasing oil for its emergency state reserves. The Norwegian krone and Canadian dollar are moving in lockstep with oil, with USDCAD dropping 0.77% while the EURNOK cross fell as much as 2.32%.
While both the krone and CAD are benefitting from the oil rally, the Norwegian krone is leading in the G10 space. NOK’s faster recovery compared to the Canadian dollar shows that while oil has been the main character in today’s gains, other factors are likely to have played a part in the Norwegian krone’s advance. Among them is the warning from Norges Bank’s last statement, in which the bank pledged to intervene in the currency for the first time in more than two decades should NOK continue to be sold off. NOK also saw the biggest losses in March among the G10 currencies.
The Bank of Canada began its first-ever quantitative easing program on Wednesday and announced a purchase of C$1.0 bln in government bonds.
As this is an unprecedented move and the central bank had not even used such a program during the global financial crisis, this highlights the massive impact the oil market collapse and the coronavirus crisis are having on the Canadian economy.
The move made for CAD to fall in the red against the dollar on Wednesday, but with oil prices recovering, CAD made its way back into the green.
Norges Bank’s pledge for FX intervention highlights the central bank’s view on currency depreciation versus that of the Bank of Canada, and remains the key thing to watch going forward as both currencies further develop in the current climate of oil price volatility and coronavirus chaos.
Author: Ima Sammani, Junior FX Market Analyst at Monex Europe.