For exchange rates, 2019 was a relatively tranquil year. During the second six months of the year, the exchange rates of USD/CAD rose to less than 1,3,000 or over 1,3350.
As further reports started filtering a new and deadly strain of coronavirus out of China in January this year and governments across the globe knew that it was spreading very quickly. Panic-stricken and collapsed markets, central banks, decreased interest rates, and currencies like the Canadian dollar have been battered by the sharp downward recession of oil prices.
Back with a bang was volatility. Back to levels not seen in more than a decade, since the 2008 Global Financial Crisis. After trading in a three-percentage-point range, the loonie fell by a full 10 percent versus the greenback in early March 2020, reaching 1.4660.
With the U.S. publicizing record jobs lost – millions upon millions of Initial Jobless Claims – and the Federal Reserve moving quickly to cut reference interest rates from 2% to 0.25 % (thereby decreasing the dollar’s financing allure against most of the major currencies), the US dollar would have destabilized in normal times. But these are not ordinary times. The US dollar increases when traders flock to “safe havens,” when markets are caught by unpredictability.
By the end of the year 2020, the USD/CAD has reverted to the level people witnessed in a free world called COVID-19. The spectacular rebound of the Canadian dollar saw the interbank market rate trackback to only a few tens of pips above 1,3,000, with its initial shock and tremendous subsidy.
COVID-19 effect on USD/CAD and past
Whereas market traders classically use economic statistics to identify the strength of a currency and, therefore, the strength of its currency, such as GDP, inflation, jobless claims, retail trade, and the buyer’s confidence, there has been a major shift toward general feelings that affect the currency rate. The present US dollar sale, returning to pre-COVID-19 levels, is a perfect illustration. The President of the Federal Reserve, Jerome Powell, pointed to “adaptive policy change” which is thought to result in somewhat higher inflation and lower interest rates for longer. The Fed’s inflation policy change should hold US rates close to zero in the foreseeable future, according to Forex trading brokers in Canada, keeping the US dollar comparatively weaker since, regardless of the pace of recovery in the US economy, they will not be quick to boost their interest rates. Both sides of the market meet members of the MAPLE Business Council. Members in the United States, who buy items or services from Canada, would have had huge discounts purchasing at the cheapest level their Canadian dollars since 2003. On the reverse, the value of the U.S. Dollar is usually greater for Canadian enterprises. Those who cost USD/CAD at the beginning of this year, say 1,3500 would have been offside – the costs for your US items or services are rising rapidly.
Trading volumes decreased in all areas at the start of the COVID-19 lock-down. No surprise, travel and allied services were one of the most seriously hit businesses – the business which should bounce back quickly as soon as a generalized vaccination is licensed. When it’s going to be anybody’s guess right now. However, the decrease in volume may also be linked to enterprises throughout the world sitting down on their accounts, storing funds for more essential things, such as the pay of month-end while trying to figure out how their businesses would shut down their offices completely.
Government schemes implemented in April to promote SMEs clearly increased business trust and since everyone had accustomed to the job-dependence change, they began to feel much more ‘company-as-usual.’ There were positive signals that corporations were adapting to a new standard, though trading volumes dropped in March and April.
What will be in the future?
It is hard to foretell exactly what is in store in these unpredictable times. According to reports COVID-19, the light at the end of the tunnel is becoming smaller in virtually all advanced economies and is rising again in the world. What should be done is to watch and guide the Federal Reserve and the Bank of Canada as they meet in September. Market traders examine every word of their words meticulously and the currency is bounced and likely to be impacted by a bearish (negative) tone or emotion.
Officials in Canada have said clearly that the recovery would be a lengthy, rocky and uneven way, as the economy is slowly opening up. The Bank of Canada warned of an extremely unclear prospect, which makes the future very hard to anticipate due to the unprecedented uncertainty. Recent figures show that the economy came to a close in April of this year (if an uncontrolled second wave of cases does not happen), but recovery requires a great amount of assistance from and stimulation for monetary policy. Until the 2% inflation objective of the BOC is stably reached, a “hospitality policy” remains in place. Here’s the essential term ‘sustainable.’ The COVID-19 issue has devastated consumer and business trust, and it will only rebound until sustainable development is attained.
“This pandemic will run greater numbers before mid-2022 since vaccination and effective treatment are widely available before then,” the Bank of Canada stated in an official statement. This scenario directed us to talk on policy and recognized the tremendous uncertainty surrounding these assumptions.” The remark was that, after the economy was progressively restored, a more sluggish and longer period of consolidation and recovery may lead to an “exceptionally robust short-term growth.”
The US Federal Reserve is expected to retain its stimulus strategy and low rate until it is sure that inflation can continue to exceed 2%.
With COVID-19 increasing cases, the US dollar will probably not decline considerably soon. It has previously seen the US dollar softly from its heights in March/April and may thus expect a period of stabilization. Remember – in uncertain times, frightened markets are rushing into American assets (such as fear of a second worldwide wave of COVID-19).