Currency Market Analysis

Nov 03, 2020 | Currency Market Analysis

Global Themes

The U.S. dollar dove from one-month peaks as Election Day dawned on America. The buck’s slide pushed rival currencies from Europe, Canada and Down Under sharply higher. Global markets are cautiously pinning their hopes on a victory for Democrat Joe Biden over President Trump. Should a blue wave indeed crash over Washington it would herald bigger market-friendly, dollar-negative stimulus than under a second four-year term for President Trump. While the buck was in an early Election Day hole, sentiment could quickly shift, particularly if it takes days or weeks to know for sure who won the White House. Once past the election, uncertainties and risks related to the coronavirus would reclaim center stage. Playing second fiddle to the election this week is a Fed policy decision Thursday and America’s jobs report Friday.

AUD

The Aussie dollar jumped more than 1% above 3 ½ month lows after Australia’s central bank slashed borrowing rates to fresh lows but said it was “extraordinarily unlikely” that it would adopt negative lending rates. The Reserve Bank of Australia cut the cash rate by 15 basis points to a fresh record low of 0.1%. The RBA is committed to job creation to help dig its economy out of its deepest contraction in decades. The central bank expects unemployment, now at 6.9%, to peak below 8% compared to its previous forecast of 10%.

GBP

Sterling soared above three-week lows as the dollar plunged and global markets staged an Election Day rally. A Biden victory, coupled with an eventual Brexit deal coming to fruition, would be pound-positive. Caution ahead of a Bank of England policy decision Thursday checked wider gains for sterling. A stronger signal that the central bank is contemplating negative interest rates to keep the recovery on track would be sterling-negative. The BOE this week is expected to increase its asset purchases to GBP845 billion from GBP745 billion.

CAD

The loonie followed up its best day in eight months with more gains that drove USD/CAD to one-week lows. Global markets are in rally mode as investors cautiously pin their hopes on a blue wave Biden victory, the outcome seen unlocking more substantial stimulus from Washington to help shore up a recovery that has lost steam. The loonie jumped more than 0.5% Tuesday which built on the previous day’s 0.7% gain, the most since early September. Local jobs data Friday are forecast to show Canada bled 7,500 jobs in October, though unemployment is expected to steady at 9%.

EUR

The euro rallied from one-month lows as markets pinned their hopes on America’s election resulting in a blue wave crashing over Washington, potentially heralding bolder fiscal stimulus than under a second term for President Trump. The euro’s main source of strength appears to be a weaker dollar given the significant dimming in European economic fundamentals as a result of renewed lockdowns aimed at slowing the rapid spread of the pandemic. 


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