Currency Market Analysis

Jun 24, 2020 | Currency Market Analysis

Global Themes

Dollar up as virus surge rattles markets

The U.S. dollar rose from one-week lows as coronavirus concerns weighed on the equity rally. Across the board gains lifted the dollar versus rivals from Europe, Japan and Canada. The Aussie and kiwi dollars along with emerging markets also underperformed. America’s top infectious disease expert, Dr. Anthony Fauci, this week warned of a ‘disturbing surge’ of Covid-19 infections. The dollar has seen haven demand evaporate this week as mounting signs of a global recovery buoyed risk assets like stocks and currencies like the euro, sterling and Canadian dollar. Still, the outlook for growth remains cloudy amid fears that a significant spike in coronavirus infections could lead to another wave of economy-damaging business closures. Cautious, dollar-friendlier trade could be the theme of the day ahead of data Thursday and Friday on weekly jobless claims and consumer spending.

CAD

Lower oil and a stronger greenback proved a recipe for loonie weakness. Oil slipped below $40 after an intraday burst above $41 Tuesday. Stocks can only seem to outrun downside risks such as the ‘disturbing surge’ in Covid-19 infections for so long. When risk sentiment falters, it tends to weigh broadly on growth sensitive currencies like the loonie. For the month, USD/CAD is down 1.4% but up 4.5% YTD.

EUR

German business optimism rose but the euro fell as coronavirus concerns caught up with and slowed the rally in risk assets. Still, data showing the second straight monthly rise in Germany’s Ifo survey to 86.2 in June from an upgraded 79.7 in May should help keep the single currency on track for a second straight winning month against the greenback.

GBP

Sterling shadowed global stocks lower, a currency that often takes its cues from broader risk sentiment. The pound’s decline underscored what’s perceived as limited upside mobility given elevated uncertainty over Britain and the EU reaching a long-term trade agreement by year-end. Failure to clinch a trade accord would risk intensifying already stiff economic headwinds on the U.K. economy.


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