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Currency Market Analysis

Mar 31, 2020 | Currency Market Analysis

Global Themes

The greenback strengthened as quarter-end flows helped it rebound after its worst week since 2009. Across the board gains lifted the dollar against the euro, sterling and Canada. The trade-weighted dollar last week shed more than 4% as a tentative calm washed over global markets following weeks of frenzied volatility. The nascent calm continued Tuesday after data showed Chinese manufacturing unexpectedly returned to growth in March. China’s good news didn’t help the Aussie dollar which slid more than 1%. The desire to hold greenbacks remains elevated at the end what’s expected to be a bad first quarter with the outlook even worse for the second quarter. Other data today showed a drop in euro zone inflation below 1% while Britain’s economy stalled last quarter. Data from North America today is expected to show a sharp plunge in U.S. consumer confidence and slower Canadian growth.


The loonie lost ground as quarter-end demand for the greenback outweighed a rebound in oil markets from 18-year lows. Canada’s economy barely grew in January when GDP ticked up by 0.1% from a 0.3% increase in December. Weaker days lurk ahead as the coronavirus hammered oil, one of Canada’s prized commodity exports. Like the Fed, the Bank of Canada slashed borrowing rates by a massive 150 basis points this month, dropping its key rate to 0.25%. USDCAD was on pace for a 9% rise over the first quarter. 


The euro fell after area data painted a more worrisome picture of growth across the bloc. Euro zone inflation returned to a danger zone below 1%, as consumer prices slowed to a 0.7% annual rise in March. The data is sure to frustrate the ECB which shoots for inflation to run just below 2%. The sharp slide in oil looms as a stiff economic headwind on both inflation and the wider euro zone economy. EURUSD was on track for a loss of around 2.4% during the first quarter. 


Sterling edged lower as many sought the greenback to rebalance portfolios on the final day of the first quarter. British data confirmed that the world’s No. 5 economy flatlined during the fourth quarter. Like most major economies, darker days loom ahead for Britain’s economy, largely due to the coronavirus. The Bank of England delivered two emergency rate cuts this month that dropped its main rate to all-time lows of 0.1%. While GBPUSD has rebounded from 35-year lows, it was still nursing losses of 6.8% for the January-March quarter.

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