The Canadian dollar has been weakening recently on a number of factors. Last week there was a sharp fall in global equity markets with profit taking after a disappointing Fed meeting and the resurfacing of COVID-fears. This weighed on the commodity currencies(AUD, NZD and CAD).

Oil markets pull back

The recent run up in oil has been impressive (in commodities in general too) but the run has come to an end recently on a number of factors:

1. Falling demand. The IEA has said that CoVID-19 is causing the biggest decline in global energy investment in history and investment in energy across the world is to drop by 20% or by $400 USD this year vs the previous forecast of 2% growth.

2. The OPEC+ production cuts extension is not enough to keep prices afloat in the face of falling demand

3. On June 09 the IEA cut 2020 world oil demand by 120K BPD to 8.34mln bpd which is a further decline in demand showing that the COVID-19 induced slowdown is continuing

All of the above further weakens the Canadian dollar as oil is one of its major exports. This is the case for CAD weakness.

COVID-19 cases return

The prospect of a second wave of COVID-19 is a concern that markets keep in the bak of the mind. The Spanish flu's second wave was worst than it's first by around 5 times;


As long as cases build in the US then expect risk off flows into the JPY. Furthermore, global output pressures from COVID-19 will only grow the longer that economies are not back to work. As it stood last week the world bank had some pretty grim forecasts going forward.


World Bank says COVID-19 to shrink 2020 global output by 5.2%

  • Advanced economies expected to shrink 7.0% in 2020
  • emerging markets to shrink 2.5% (first since aggregate data became available in 1960)
  • per capita GDP global contraction is to be the deepest since 1945-46 as WW2 spending dried up
  • Updated forecasts show more damage to the economy that April estimates that looked for a 35 contraction in 2020.

CADJPY outlook

Oil, JPY

All of the above gives a CADJPY bias to the downside. The main risk to this outlook would be if there is some positive COVID-19 news that will result in the JPY weakening.