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Currency Market Analysis

May 04, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar rose against the bulk of its rivals as market tensions flared. The euro, sterling and Canadian dollar backpedaled from recent peaks against the greenback. The U.S. unit also rebounded from multiweek lows against the Aussie and kiwi dollars. Markets are waving the caution flag as tensions escalate between the U.S. and China over how the coronavirus started. Some fear the dispute could lead to fresh trade tariffs with the potential to increase already strong headwinds on global growth. Meanwhile, the run of record weak data looks set to mount in the coming week with attention on America’s April employment report on Friday. Consensus estimates call for a loss of around 20 million U.S. jobs last month which could launch unemployment to around 16%, nearly quadruple March’s 4.4% rate. 


Weaker risk sentiment weighed on Canada’s dollar. Both stock and oil markets started the week with declines with the latter down 2% but still around $19. The market is also bracing for Canada’s April jobs report on Friday which could show more record weakness. April hiring likely contracted by around 4 million which would be far above March’s record loss of just over 1 million jobs. Unemployment is forecast to explode to 18% from 7.8%. A worse than expected jobs report would signal a baptism by fire for Canada’s change to a new central bank governor to Tiff Macklem from Stephen Poloz in early June.


Risk aversion and expectations for more bad news on the European economy this week converged to pull the euro down from one-month highs. Global stocks are generally weaker as tensions flare between the world’s two biggest economies over the origins of the coronavirus pandemic. Meanwhile, German data Wednesday and Thursday are forecast to show significant weakness for the influential factory sector.  


Sterling fell from mid-April highs as risk aversion buoyed America’s haven currency. U.K. events to watch this week include the final estimate of services growth Tuesday that’s forecast to confirm record weakness for April. The Bank of England issues a policy decision Thursday when it’s likely to keep its main borrowing rate at 0.10% following two emergency rate cuts in March. 

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