Canadian Dollar Falls As New COVID-19 Strain Weighs on Crude Oil

The Canadian dollar fell against its US counterpart on Tuesday as a new strain of the coronavirus weighed on crude oil prices. So far this holiday-shortened trading week, investors have been seeking refuge in the traditional safe-haven asset, highlighting legitimate concerns over the threat of this COVID-19 mutation. Will other currencies in foreign exchange markets slump should the situation intensify?

Broader financial markets have been sliding this week ever since the UK government went into an emergency lockdown after reporting a rapidly spreading new strain of the respiratory illness. Health experts estimate that it is 70% more infectious.
This triggered the British government to take action, leading to more than 30 countries to impose new border controls and travel restrictions. It is not entirely clear if the mutation will diminish the efficacy of the coronavirus vaccines currently being distributed worldwide.
Energy markets have been hammered on the news over worries that the new strain might exacerbate the global pandemic, possibly hindering the international demand recovery. On Tuesday, January West Texas Intermediate (WTI) crude oil futures tumbled $1.07, or 2.23%, to $46.90 per barrel.
Canada maintains a current account deficit, so exports are critical to the strength of the national economy. Since oil and gas remain the country’s primary exports, any significant change in prices — high or low — can affect the loonie and the broader economy.
On the data front, average weekly earnings rose 5.9% year-over-year in October, down from 6.6% in September. Wholesale sales jumped 1% last month, while the new housing price index advanced 0.6%.
The Canadian government bond market was in a sea of red. The benchmark 10 -year bond fell 0.028% to 0.701%. The one-year note slipped 0.024% to 0.16%, while the 30-year bond shed 0.027% to 1.254%.
Last week, the Bank of Canada (BoC) warned that the economy could contract in the first quarter of next year due to rising infections that would dampen short-term growth. BoC Governor Tiff Macklem told reporters via video conference:

The economic recovery from the pandemic is at a very difficult stage. Near term, rising COVID-19 infections will dampen growth and could even deepen our economic hole.

The USD/CAD currency pair climbed 0.42% to 1.2913, from an opening of 1.2858, at 19:27 GMT on Tuesday. The EUR/CAD slid 0.33% to 1.5693, from an opening of 1.5738.
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Original from: www.earnforex.com