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Currency Market Analysis

Oct 06, 2020 | Currency Market Analysis

Global Themes

America’s dollar nursed a soft bias after falling overnight to multiweek lows. The buck descended to two-week lows against the euro and Canadian dollar, and its weakest in three weeks against the U.K. pound. The dollar continues to revolve around Washington where hopes have risen for lawmakers to agree on more recovery-jolting stimulus. President Trump back at the White House after a weekend stay at the hospital to treat his Covid infection has also buoyed risk sentiment at the expense of safer plays like the dollar. But despite the ebbs and flows of optimism over stimulus, uncertainty remains elevated, keeping markets a bit off balance. Central bankers are in focus today with the president of the ECB speaking at 9 a.m. ET, followed by the Fed chairman at 10:40 a.m. ET. 


Sterling fell after an overnight rise to mid-September peaks. A weaker dollar and the notion that Britain pursing negative rates may happen later rather than sooner boosted the pound. But gains proved tough to maintain after the EU voiced skepticism in a Brexit deal before year-end. The specter of a no-deal Brexit is among the major downside risks facing sterling and the wider U.K. economy. 


The euro rose to two-week highs against the subdued greenback. Still, Europe’s single currency kept to the middle of its range since July. Top ECB officials speak today, remarks that could shed some light on the outlook for policy. Euro zone inflation running below zero suggests an open door to stronger stimulus to bolster a recovery at risk from a second wave of Covid-19.


Canada’s dollar jumped to two-week highs thanks to a weaker southern counterpart and stronger oil markets. A more than 2% rally pushed the price of oil above $40, supporting commodity plays like the loonie. Key event risks this week include a speech by the governor of the Bank of Canada Thursday and Friday when Canada issues its September jobs report. Forecasts call for slower hiring of around 160,000 compared to the more than 245,000 jobs netted in August. Unemployment is expected to dip inside of 10%.


The Aussie dollar emerged weaker after a choppy overnight session. Australia’s dollar had gained after the country’s central bank, the RBA, left borrowing rates unchanged at all-time lows of 0.25%. But the RBA maintaining a rate cutting bias ultimately weighed on the Aussie. High and rising unemployment, coupled with a severe Covid-induced economic downturn, suggests an elevated risk of a rate cut as sooner as central bankers’ next meeting in early November. 

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