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Currency Market Analysis

Mar 09, 2020 | Currency Market Analysis

Global Themes

America’s dollar got trampled to one- and three-year lows against the euro and yen, as plunging oil markets heightened global instability. The greenback also sank to five-week and two-year lows against rivals from Britain and Switzerland. While broadly weaker, commodity currencies were in the front lines of oil’s 30% collapse overnight to below $30. Consequently, Canada’s dollar flirted with three-year lows, while the Aussie and kiwi dollars hit new 11-year bottoms. Emerging markets were thrashed with the Mexican and South African units sinking to three- and four-year lows. Failure of the world’s top oil producers to agree to production cuts fanned oversupply worries, knocking crude sharply lower. At last check oil was down more than 20% to below $32. The greenback continues to take its main cue from the freefall in Treasury yields, a signal that U.S. interest rates may need to revisit rock-bottom levels near zero.


Oil’s massive overnight slide throttled the loonie to nearly three-year lows. USDCAD soared to May 2017 highs as it partially benefited from a broad flight to safety with energy markets in freefall. The latest developments hint at further falls in Canadian interest rates after the nation’s central bank delivered a bold cut last week. A lack of much domestic data this week will see global developments in the driver’s seat for the loonie. Oil markets are expected to remain volatile. But if oil producers can reach an agreement on production cuts, prices along with commodity currencies could potentially whipsaw higher.


The global market selloff gaining a huge head of steam sent emerging markets careening to new long-term lows. The peso plunged by more than 8% Monday to three-year lows. The outlook has darkened materially for emerging markets given scant signs of a bottom for the coronavirus-induced slide in world markets and thus appetite for riskier, higher-yielding assets. Until the number of North American cases of the coronavirus show signs of receding, the path of least resistance appears lower for emerging markets.


The yen soared by nearly 3% to three-year highs against the greenback. The move was entirely safe haven based as Japanese data raised the risk of recession in the world’s No. 3 economy. Revised data showed that Japan’s economy contracted by a massive 7.1% during the fourth quarter. Another negative print in the first quarter, which seems all but certain amid the coronavirus, would meet the textbook definition of recession.  


The pound scaled five-week peaks as plummeting U.S. Treasury yields depicted the Fed on a fast track to slashing borrowing rates towards zero. Broad dollar weakness boosted sterling. It’s already a big week for sterling with Britain’s new finance chief expected to unveil a new budget Wednesday, the same day Britain releases critical data on growth and factory output. Should the budget disappoint hopes of bold, economy-boosting spending plans, sterling would be at risk of surrendering some of its early week gains.


A more than 1% rally Monday launched the euro to 13-month highs against its U.S. rival. EURUSD is flying higher and higher as global tumult hastens a reversal in euro-funded carry trade bets, while collapsing U.S. Treasury yields raise the risk of the Fed having to deploy zero interest rate policy in a bid to keep America’s record long expansion intact. A strengthening euro is an unwelcome development for Europe which makes the bloc’s exports more expensive abroad. A stronger euro could give the ECB more reason to ramp up already lavish monetary stimulus on Thursday.  

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