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Currency Market Analysis

Feb 12, 2020 | Currency Market Analysis

Global Themes

Commodity currencies catch fire

Easing concerns about the coronavirus and reports of fewer new cases caused the U.S. dollar to steady, allowing rival currencies to rebound from multimonth lows. The euro was little changed, while the commodity trio from Australia, New Zealand and Canada strengthened, supported by improved risk tolerance. The kiwi dollar was the session star with a more than 1% rally after New Zealand’s central bank left borrowing rates unchanged at 1% and issued a statement that sounded more hawkish than dovish, thereby dampening chances of further rate cuts. The rise in risk sentiment has the greenback firing on one fewer engine as its rally to four-month peaks has been powered by haven-seeking, America’s healthy economy and its juicer yield appeal. With the euro seeing the whites of the eyes of last year’s lows, its weakest since May 2017, investors appear in search of a catalyst before driving the dollar further higher.


The kiwi dollar was on a tear as a more than 1% rally lifted it above its biggest hole in three months, and had it on track for its best day of the year. As expected, the Reserve Bank of New Zealand left interest rates at a record low 1%. But its statement shifted its policy bias up to neutral from easing, suggesting its rate cutting days, for now, may be over. The RBNZ flagged uncertainty over the coronavirus whose toll on growth, if material, could keep the door cracked to kiwi-negative lower rate policy. 


Sterling neared one-week highs as area growth last quarter, while weak, wasn’t as bad as some had feared. Moreover, hopes of a GDP uptick as soon as the first quarter provided another hand higher for the pound, pulling it above 2 ½ month lows. Uncertainty over whether London and Brussels will reach an economy-friendly trade agreement by year-end has the pound walking a tightrope. 


The euro dangled near four-month lows, hurt by rising recession risk across the continent. Euro zone industrial production sank by 2.1% in December which won’t inspire confidence ahead of Friday’s report on fourth quarter growth. The euro’s decline this week has it seeing the whites of the eyes of 2019 lows, its weakest since May 2017. Friday Q4 growth data from Germany and the euro zone, if disappointing, loom as potential catalysts to push the euro towards 2 ½ year lows.


Canada’s dollar swung to more than one-week highs from four-month lows thanks to improved risk tolerance, stronger oil and a higher kiwi dollar. A moderation in concerns about the coronavirus tempered the need for safety in haven assets like the greenback. Stocks pointed to gains at the open, while a more than 2% rally boosted crude prices above $51 from 13-month lows below $50. Prevailing risk sentiment, which remains fluid, holds a key to the loonie given a lack of major data this week. 

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