Currency trading is never for the faint of heart. But Wednesday spelled a particularly hair-raising day in foreign-exchange markets.
"My jaw hit the desk," says Lennon Sweeting, corporate dealer at CanadianForex, of the Bank of Canada's surprise rate cut.
The Canadian dollar plunged by more than a cent moments after the central bank announced it would cut its key rate by 25 basis points. By noon, it had weakened further, to a near six-year low at below 81 cents.
It all began as a relatively calm day – cappuccino in hand, Mr. Sweeting arrived at his Toronto office at 7:15 am. He works on risk management at the global currency broker and executes foreign-exchange trades for North American corporate customers. He caught up on the overnight news, wrote commentary for clients and went to a meeting.
The phones had stopped ringing and things quieted down just before the central bank announcement. On the desk, much attention was instead focused on the European Central Bank meeting. No one anticipated a Canadian rate cut.
Then, at 10 a.m. ET, pandemonium hit. Notifications popped up from liquidity providers, alerts flashed on the Bloomberg terminals and the loonie tanked.
"It definitely took our whole floor by surprise," he says, adding that "some of us have a little egg on our face" when it comes to what strategies they had been providing to customers.
Within moments, Mr. Sweeting and colleagues were notifying corporate clients of the decision, what the currency's move meant to them (positive or negative, "depending on what side of the fence they sit on") and what next strategies might be.
"For any exporters here in Canada, this is obviously a big development that's going to affect their business tremendously, so time is of the essence," he says, adding that "I received a few phone calls that had maybe some explicit language. People were very shocked."
He has been in the business for six years and spent the rest of the day executing trades on behalf of his corporate customers and managing their positions.
"Some are sellers who are wanting to take advantage and capture the opportunity here. Some are margin calls for customers who have forward contracts or hedging products that are meant to provide stability for them in terms of their receivables, etc. But unfortunately with a big move like this, we would have to margin call some of those positions and kind of top up deposits."
He was not alone in the scramble though. Not a single economist of the 22 surveyed by Bloomberg News expected Wednesday's rate cut, the first reduction in nearly six years.
"The shocking immediate [currency move] in the space of seconds speaks volumes as to the violence of the reaction," said chief currency strategist Camilla Sutton of Bank of Nova Scotia.