Currency Market Analysis

May 27, 2020 | Currency Market Analysis

Global Themes

Buck stabilizes after sinking to fresh lows

America’s dollar stabilized after sinking overnight to fresh multi-week lows. The euro and Canadian dollar held firm around eight- and 10-week peaks, respectively, against the greenback. But sterling slid from two-week peaks while the Aussie dollar retreated from two-month highs. Euphoria about economies getting back to business has cooled demand for the greenback. The buck has served as an ultimate shelter-in-place trade given the devastating blow to global growth from the Coronavirus pandemic. Still, a cautious backdrop with U.S.-China tensions flaring has offered underlying support to the U.S. currency. Key U.S. numbers ahead include weekly jobless claims Thursday and consumer spending Friday, when Fed Chairman Jerome Powell also speaks.

CAD

The loonie held firm near its strongest in 10 weeks against its U.S. rival. While softer today, oil markets have staged a remarkable recovery from historic lows below zero, buoying commodity currencies. Thrust propelling the Canadian dollar higher could wane ahead of key event risks. Canada on Friday publishes first quarter growth that’s forecast to contract by a stunning 10%. A change in central bank leadership looms next week when Tiff Macklem succeeds Stephen Poloz as governor on June 3, the same day the Bank of Canada renders a policy decision.

GBP

Sterling fell from two-week highs as markets pondered the notion of the Bank of England having to resort to negative borrowing rates to help it dig its way out of a historic Coronavirus-induced recession. The BOE earlier this month warned that the British economy could contract around 14% this year which would be its worst performance in more than 300 years.

EUR

An overnight rally helped the euro finally break above key psychological resistance. The euro notched eight-week highs on signs of movement in Europe’s push for a massive Coronavirus recovery fund to help the bloc recover from what’s expected to be its worst-ever recession. Still, deep divisions remain among EU nations about the strings attached to the aid, a factor that could limit euro gains.


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