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Currency Market Analysis

Apr 22, 2020 | Currency Market Analysis

Global Themes

Markets calm, dollar cools

The U.S. dollar moderated from multiweek highs as global stocks stabilized, though oil markets remained wobbly. The greenback softened from two-week peaks against the euro and sterling, and its highest in three against the Canadian dollar. Oil remained in the driver’s seat, setting the tone for equities and currencies. Crude was modestly weaker Wednesday but held above $11, a somewhat reassuring sign, one that investors took as an excuse to wade into risky assets. Investor confidence remains fragile as oil’s historic slide suggests a longer road to recovery for the world economy. Optimism is also seen in short supply ahead of tomorrow’s crucial readings on U.S. and European purchasing managers’ indexes, and America’s weekly snapshot of the job market. The surveys, taken together, are likely to prove another signpost of the world economy contracting at a rapid rate.

CAD

Canada’s dollar rose above three-week lows, boosted by improved risk tolerance with stocks and oil markets scoring early gains. U.S. crude prices were around $13 thanks to a 12% rally. Better performing oil helped the loonie weather a sharp slowdown in Canadian inflation. Consumer prices slowed to 0.9% in March, the lowest since May 2015, from above 2% the previous month. The data offered clear evidence of the one-two punch to the Canadian economy from the coronavirus and sinking oil prices. The Bank of Canada sees inflation on a fast track to zero in the second quarter, which could herald stronger stimulus in a bid to ward off deflation.

GBP

A ‘buy on the dip’ mentality helped lift sterling out of its largest hole in weeks. The pound tends to flock with the risk asset crowd as it often shadows global stock movements. Equities in positive territory catalyzed some bargain buying of the pound after its four-cent fall from one-month peaks. Adding to sterling’s bounce, U.K. inflation cooled to 1.5% in March, as expected, from 1.7%. Some had positioned for a far bigger slowdown in U.K. price growth.

EUR

The euro kept to a tight range with upside capped by skepticism in Europe taking decisive action this week to bolster its economy from ferocious coronavirus headwinds. EU leaders are due to hold a video conference Thursday at which they will discuss ways to limit the economic toll from the outbreak. With expectations low for action, the euro would be well placed for a bounce should officials at least signal a unified front to tackle downside risks.


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