Currency Market Analysis

Mar 18, 2020 | Currency Market Analysis

Global Themes

Sterling trounced, collapses to 3 ½ year low

The greenback’s rapid revival gathered steam as it charged to fresh 2020 highs on a trade-weighted basis. The U.K. pound, down 7% this month and 10% so far in 2020, crashed to October 2016 lows. The euro dipped while oil’s 9% slide to $24, the lowest since 2003, pushed the loonie to another four-year bottom. The Aussie dollar hit a 17-year trough with currencies from Mexico and Norway sinking to record lows. Worries about the coronavirus throttling global growth are outweighing policymaker proposals to limit the economic toll. Even stimulus of around $1 trillion may not be enough to ward off recession in the U.S. and abroad. In a similar vein to consumers emptying the shelves at grocery stores, investors and companies are treating the greenback the same way, gobbling it up given its highly liquid status. The buck’s renewed strength could be tested today by the Fed’s 2 p.m. ET policy decision.

MXN

The latest leg lower in oil markets stiffened headwinds on currencies from Mexico and Norway. The price of oil plummeted 9% to below $25, the weakest in nearly 17 years. Volatile global markets continue to leave oil-linked currencies vulnerable.

AUD

The Aussie dollar’s deepening descent pushed it to 17-year lows against the greenback. The kiwi dollar slid to mid-2009 lows. Both currencies are being ravaged by the coronavirus that threatens a global downturn and thus markedly reduced demand for commodity exports from Australia and New Zealand.

GBP

Sterling bears devoured the U.K. currency whose more than 1% tumble Wednesday knocked it to October 2016 lows. Sterling is being shunned for a variety of factors, including heightened demand for the highly liquid greenback and expectations that the new-look Bank of England may unveil bolder monetary measures next week, like QE, to ease the economic blow from the coronavirus. The market has priced a more than 33% chance of new BOE Gov. Andrew Bailey cutting interest rates to zero on March 26 from 0.25% currently.

CAD

Canada’s dollar sank to fresh four-year lows as oil markets staged another significant swoon. Crude plunged 9% to below $25, the lowest since 2003. Meanwhile, a gauge of underlying inflation in Canada steadied at 1.8%, below the Bank of Canada’s 2% goal, giving central bankers scope to lower interest rates from 0.75% to help the economy better weather negative shocks from the coronavirus pandemic.


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