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Currency Market Analysis

Jan 27, 2020 | Currency Market Analysis

Global Themes

Growing concern over the deadly coronavirus and its potential to squeeze global growth drove traders into safer bets like the U.S., Japanese and Swiss currencies. The yen climbed to three-week highs against the greenback, while the U.S. unit notched new multiweek peaks against the euro, Canadian dollar and Mexican peso. The Aussie and kiwi dollars, currencies with close ties to all things China, were among the worst performers with losses of nearly 1%. With risk aversion rife across markets, Wall Street futures and oil were awash in red ink. A nearly 3% slide in oil to below $53 compounded weakness for commodity currencies. No sign of a lid to contain the coronavirus, coupled with a rising death toll, suggests things could get worse before they get better. Health worries will share the limelight this week with a midweek Federal decision and key growth numbers from the U.S., Canada and Europe.

GBP

Sterling mostly treaded water ahead of a much-anticipated Bank of England announcement Thursday and the expected commencing of Brexit the day after. The latest odds of a rate cut on Jan 30 stand at nearly 60%. Change or no change in rates, sterling is likely to move given how close a call the decision is considered. Inflation running at multiyear lows makes a compelling case for policymakers to act. The BOE will have installed a new governor in Andrew Bailey when it renders its next decision on March 26.

CAD

Canada’s loonie fell to six-week lows as oil slid and caution reigned ahead of local growth data Friday. A 3% slide drove oil to $52, the weakest in 2 ½ months, on worries about China’s health crisis taking a toll on global growth and appetite for energy. Persistent weakness is on the cards for Canada’s November growth report on Friday. Forecasts call for a print of zero from minus 0.1% in October. Should the data disappoint already low expectations it would strengthen the case for a loonie-negative rate cut as soon as the spring.

EUR

The euro stabilized but maintained a fragile underbelly after falling overnight to eight-week lows. Worries about the potential for China’s deadly virus to weigh anew on global growth led to broad-based strength in traditional safe havens like the U.S., Japanese and Swiss currencies. It also didn’t help the euro that German business confidence weakened in January, dashing hopes of stabilization in the bloc’s biggest economy. Big event risks loom Friday when the euro zone releases January inflation and fourth quarter growth.


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