Currency Market Analysis

Apr 20, 2020 | Currency Market Analysis

Global Themes

Sinking stocks and plunging oil markets provided a dollar-positive backdrop to start the week. The U.S. currency was mostly stronger with gains against the euro, sterling and Canadian dollar. Safer rivals like the yen and Swiss franc also underperformed. Another shock slide in oil to as low as $11, the cheapest in more than two decades, is casting a pall over financial markets. Oil-linked currencies are taking the latest fall on the chin with the loonie, Norwegian krone and Mexican peso sharply weaker. Canada’s dollar fell nearly 1%. The decidedly risk-off start to the week also stems from trepidation ahead of a raft of global PMI surveys Thursday that should hint at the extent of the coronavirus-led downturn. Forecasts largely call for this week’s numbers to show unprecedented weakness.

GBP

Sterling dipped into the new week as broad based risk aversion buoyed the U.S. dollar. The pound encountered other headwinds from expectations for U.K. data this week to highlight the extent to which the coronavirus has damaged Britain’s economy. Brexit is also returning to the spotlight with the government signaling a steadfast determination to honor the year-end deadline to reach a long-term trade agreement with the EU even if one doesn’t materialize in time. 

EUR

The euro moderated ahead of a Thursday summit of EU officials. European policymakers are scheduled to hold a video conference this week to discuss ways to bolster growth from the coronavirus. The euro is down 1.5% in April and has fallen 3% in 2020, partly as policymaker efforts to date have yet to win over skeptical markets. A summit that should come and go and stop short of signaling a united front on shoring up growth would leave the euro vulnerable to increased downside risk.

CAD

Canada’s dollar fell prey to the latest oil market selloff that drove prices to $11, a rout of 38% on the day alone, the lowest level in over two decades. The loonie is also girding for Canadian data this week on retail sales and inflation. Consumer spending will be a snapshot of February activity, before the coronavirus made economic landfall in North America. Regardless of whether the data beats or misses expectations, the outlook has darkened materially for consumer spending and the wider Canadian economy, a loonie-negative backdrop.


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