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  • USD/CAD bulls still have sights on 1.45 and 1.50 pertaining to the COVID-19 crisis.
  • Oil and QE will likely underpin the bulls in a risk-off dominate theme.

A sharp move to the downside in the price of oil in the last couple of hours of trading in New York has helped lift USD/CAD back towards1.4000, at 1.3997, -0.78%, having travelled from a high of 1.4143 to a low of 1.3944 on the day. We had seen some signs of slowdowns in contagion in Europe which are fuelling some optimism and balancing out the US crisis, helping to lift US stocks and risk appetite.

However, oil has fallen off a cliff with the Energy Information Administration lowering its US and global benchmark crude price forecasts for this year and next. There is also an element of OPEC+ playing out in the sentiment as uncertainty prevails. Traders will want to see a positive outcome in the form of an agreement of a global output cut when major producers meet later this week. Meanwhile May West Texas Intermediate oil has lost $2.45, or 9.4%, to end at $23.63bbls on the New York Mercantile Exchange while spot prices ht a low of $23.52bbls. More on that here: WTI drops below $24 as crude oil selloff intensifies ahead of API stock data

All eyes on the greenback, QE and oil

In FX, the USD’s resilience is down to how uncertain the conditions are out there for financial market participants and the dominance is likely to prevail so long as we have volatility While the VIX is half of what it was at the start of the crisis, it is still elevated way above the norms that we have seen over the recent post-GFC years. Markets are hesitant ahead of what could be another sovereign debt crisis in the making. 

Meanwhile, the Canadian Government joined the chorus of a “whatever it takes” playbook to battle the COVID-19 crisis and markets are in anticipation of the Bank of Canada likely ramping up additional QE which to date has been relatively modest compared to other developed central banks. That, coupled with the price of oil on its knees, you can expect USD/CAD to remains underpinned on the bid towards the 1.45 target level with bulls seeking a test of 1.50 eventually. 

USD/CAD levels