Currency Market Analysis

Mar 03, 2020 | Currency Market Analysis

Global Themes

The greenback stabilized above 1 ½ month lows but continued to nurse wounds against haven rivals. The euro slipped from 1 ½ month peaks while better than expected U.K. data boosted the pound. Commodity currencies were mixed with the loonie lower and the Aussie and kiwi dollars higher. Safe bets remained in the driver’s seat as persistent concerns about the coronavirus eclipsed hopes for the world’s biggest central banks to lend a monetary lifeline. Leaders from the Group of Seven nations today issued a statement that affirmed their willingness to act in support of global growth. But officials’ words rather than immediate actions left many wanting more which worked in the favor of currencies like the dollar, yen and Swiss franc. Politics could soon enter the calculus for the dollar with Super Tuesday underway.

GBP

A surprise return to growth for a U.K. PMI pushed the pound into positive territory for the day. Britain’s construction sector bounced back sharply in February. While construction only accounts for a small slice of the U.K. economic pie, the sector’s stronger showing at the margin boded somewhat better for the more important services sector PMI tomorrow. Money markets are currently pricing a more than 80% likelihood of the Bank of England cutting interest rates to 0.50% from 0.75% by its March 26 meeting.

CAD

Canada’s dollar weakened toward nine-month lows ahead of a crucial Bank of Canada policy decision Wednesday. The market is pricing a high risk of Ottawa cutting rates to at least 1.50% from 1.75% as the coronavirus likely slowed the nation’s economy further after it barely expanded during the final three months of 2019. Key for the loonie’s coming prospects will be whether Canada cuts rates and what the move does for global investor sentiment. A rate cut that helps to inspire global risk appetite might do more to help rather than hurt the loonie.

AUD

Australia’s dollar rose despite area interest rates falling overnight to record lows. The Reserve Bank cut rates to an all-time low of 0.50% from 0.75%. The Aussie edged up from 11-year lows as the cut wasn’t as big as some people had expected. Underlying sentiment remains bearish for the Aussie given the nation’s close economic ties to China whose economy likely lost significant momentum during the first quarter.

EUR

The euro lost altitude after area data offered a reminder of the bloc’s weak fundamentals. Both headline and core inflation increased at dangerously low rates of 1.2% in February, keeping far below the ECB’s near 2% sweet spot. The euro has nearly dug itself out of a 2020 hole as global turmoil related to the coronavirus spurred a sharp reversal of euro-funded carry trades on higher yielding currencies. The euro’s more data directional move today illustrates how fundamentals remain a source of negativity.  


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