Currency View by OFX

Last week’s news

• China’s markets re-open today in which futures markets indicate there is to be a sea of red across the board in equities. The Chinese central bank announced on the back of the epidemic situation brewing over the holiday period that it will inject 1.2 trillion yuan (US$174 billion) into markets via reverse repo operations to ensure that there is ample liquidity in the market. The reverse repo injection is set to be one of 30 measures announced by multiple authorities in China to help steel the economy against the disruption from the coronavirus outbreak.
• The Chinese Yuan fell to its lowest level this year. Last week, the USD/CNH started to trade at around 6.9449 and ended the week at 6.9972 (weaker Yuan).
• The Japanese Yen and Swiss Franc have continued to rise as safe havens amid mounting fears the Coronavirus will morph into a global health emergency.
  The British Pound has been battered on Monday morning as investors begin to respond to Boris Johnson’s comments over the weekend that he is willing to walk away from talk’s over the U.K.’s future trade relationship with the EU if he doesn’t get what he wants. Additionally, the Pound was not helped last week by the U.K. Prime Minister potentially allowing Huawei Technologies Co. to build fifth-generation wireless networks, undoubtedly complicating its relations with the U.S.
• The Loonie followed most G10 peers’ price action and the market’s mood, which was mostly in a “risk-off” environment. Specifically, the Loonie got moderately hammered amid a fall in the price of crude oil to a 3 and a half-month low. Nonetheless, the Loonie did better than the Aussie and Kiwi dollar, given that Australia is a good proxy of the Chinese economy, and the Kiwi economy is linked with the Australian economy. There was no important economic data released in Canada last week

Looking ahead

• Market participants are still expecting Australia to keep interest rates unchanged this week as the RBA continues to wait for an economic rebound. Economists and market participants in general are expecting the RBA to keep the cash rate on hold at 0.75%, but it may be too optimistic. When considering the near-term economic threat of the Coronavirus pushing the Chinese economy lower and Iron Ore collapsing by 10% last week, it will slow down the Australian economy. This new virus will probably have a material impact on Australian economic growth and it is likely that Australian GDP growth projections will be lowered this week by the RBA. The AUD/USD and AUD/JPY pairs already spoke loudly last week, falling 2% and over 2.6% in only 5 days.
• The volatility of the GBP/USD pair fell on Friday as market participants priced out Bank of England risks. Right now, the volatility in the Pound trades is the lowest seen in more than six months. Yes, everything suddenly changed right after Brexit last Friday and following the BoE decision. However, Pound volatility may rebound should tensions over a trade agreement between the U.K. and the European Union escalate. At the same time, Euro volatility could have a pick up as U.S. President Donald Trump said Friday that a trade deal with Europe is next on the agenda.
• The Loonie and the Norwegian Krone might be impacted when the OPEC and non-OPEC’s Joint Technical Committee meet on February 4-5th to discuss the potential impact of the Coronavirus outbreak on the oil market. This meeting will likely discuss the alternative of prolonging or increasing a cut on oil output.

Key market events this week

• AUD Building Approvals MoM (Dec) – Monday
• CNY Caixin China PMI Manufacturing (Jan) – Monday
• EUR France Markit Manufacturing PMI (Jan) – Monday
• GBP UK Markit Manufacturing PMI (Jan) – Monday
• AUD RBA Cash Rate Target (Feb) – Tuesday
• CAD Markit Manufacturing PMI (Jan) – Tuesday
• USD ISM Manufacturing PMI (Jan) – Tuesday
• USD Durable Goods Order MoM (Dec) – Wednesday
• AUD Retail Sales MoM (Dec) – Thursday
• INR RBI Repurchase Rate (Feb) – Thursday
• USD Initial Jobless Claims (Feb) – Friday