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Currency Market Analysis

Mar 20, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar’s rally to milestone highs moderated as markets took some comfort from central bank efforts to try to dampen the economic blow from the coronavirus. The euro firmed above three-year lows while sterling and the Aussie and kiwi dollars were 2% higher. Canada’s dollar also climbed, rising nearly 2% thanks to a 5% jump in oil to $26. Wall Street today will attempt for a second straight day of gains, something it hasn’t done for a while. Multiple emergency interest rate cuts this month from the U.S., Britain and Canada are starting to show signs of bearing fruit. The Fed also increasing dollar liquidity and availability to a cash-hungry world also helped to buoy sentiment. The dollar’s pullback may prove more of a breather than a reversal given still-skittish sentiment and how data is starting to show the damaging effects of the virus.

CAD

A moderating greenback helped the Canadian dollar rebound from four-year lows. But oil’s slippery handle on gains Friday suggested Canada’s commodity-linked currency wasn’t out of the woods. Canadian consumer spending topped forecasts as retail sales rose by a solid 0.4% in January. But excluding volatile auto sales, spending contracted. The data, on balance, depicted the Canadian economy on a fragile footing ahead of the coronavirus crisis.

GBP

A 2.5% rally Friday helped sterling end a horrific week on a brighter note. The Bank of England helped to pencil in a line under the pound after it delivered a second emergency interest rate cut in as many weeks. The BOE Thursday slashed its key rate to a record low of 0.1% from 0.25%. The pound for now is taking its cue from the upside of the BOE’s action for growth than the downside from a diminished yield appeal. By making borrowing more affordable, the BOE hopes to entice consumers and businesses to step up spending. Sterling crashed to 35-year lows this week and was still on pace to end it nearly five cents weaker.

EUR

The euro rose above three-year lows but was still on pace for one of its worst weekly showings in a while. While firmer, the euro this week has shed nearly 4 cents against the greenback whose safety and liquidity proved the only game in town amid the escalating coronavirus pandemic. The coronavirus is credited with dealing the bloc’s economy a significant setback. Data this week showed a massive plunge in German investor morale, a potential harbinger of recession over the first half of the year.


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