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Currency Market Analysis

Apr 15, 2020 | Currency Market Analysis

Global Themes

Dollar soars as global pessimism intensifies

Dire forecasts for global growth and oil markets rattled sentiment and spurred a fresh round of dollar buying. Gains of around 1% lifted the U.S. currency out of its biggest hole in two weeks against the euro and yen, and its largest in a month versus sterling and the Canadian dollar. The Aussie and kiwi dollars along with emerging markets were 1-2% weaker against the greenback. Global stocks and oil are sliding after the International Monetary Fund this week unveiled fresh forecasts for global growth that it sees contracting by 3% this year, the most since the 1930s. Adding to the gloomy backdrop, the International Energy Agency expects record low demand for oil this year due to the economic impact of the coronavirus. Expectations of today’s report on U.S. retail sales to show a big plunge in March also buoyed safe bets.

EUR

The euro tumbled from two-week peaks as pessimism about the global economy intensified, steering risk-averse players to the safety of the greenback. The euro’s better performance was halted after dire forecasts for both global growth and oil markets. Meanwhile, signs of the coronavirus taking a bigger bite out of U.S. growth added to risk-off sentiment. Underscoring the frail shape of the euro zone economy, the IMF expects the 19-country bloc to contract by a whopping 7.5% this year.

CAD

Pre-Bank of Canada caution and oil markets sinking below $20 to fresh 18-year lows conspired to knock the loonie from four-week peaks. The market isn’t ruling out fresh stimulus from the BOC today when it announces a policy decision at 10 a.m. ET. Canada’s central bank last month slashed borrowing costs by a massive 150 basis points to 0.25% to help ease the economic wallop from the coronavirus. A dovish outcome today where the BOC delivers more stimulus, such as increasing its QE program and keeping the door ajar to additional support would risk a renewed slide in the Canadian dollar toward recent four-year lows.

USD

The dollar caught a stronger tailwind as record weak U.S. data added to global gloom and kept investors chasing safer bets. The 8.7% plunge in U.S. retail sales in March was a record and just eclipsed forecasts of an 8% slide. New York serving as the epicenter of the coronavirus in the U.S. was decidedly evident in data showing the Empire State Index contracted by a record 78.2 in April which was more than double forecasts of a minus 35 reading and nearly four times weaker than March’s print of -21.50. The data is consistent with the coronavirus taking a growing toll on the world’s biggest economy.

GBP

Sterling slipped two cents from one-month highs as rising risk aversion buoyed safer bets like the greenback. The IMF’s bleak forecast for global growth served as a timely reminder of the grim state of the U.K. economy. The IMF expects the U.K. economy to contract by 6.5% in 2020, more than double its estimated 3% decline for the world economy, another factor behind the pound’s U-turn from multiweek peaks.  


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