Currency View by OFX

Last week’s news

• The number of new US daily coronavirus cases surpassed 50k for the first time ever last Wednesday, propelled by record rises in some of the most populous states such as California and Texas. The surge in cases came just before the July 4th Bank Holiday weekend in the U.S. Throughout the month of June, the daily case rate rose by 105%. Although lockdowns in the US are controlled by states, many large companies are taking it upon themselves to re-close for safety purposes. Apple announced it would reclose 30 US retail stores whilst McDonalds is also postponing plans to reopen dining areas in its US restaurants by 3 weeks.
• In the House Financial Services Committee, in the US, Fed Chair Jerome Powell said it is important to keep Covid-19 controlled following the deepest contraction of the US economy in decades. He added, “…we have entered an important new phase and have done so sooner than expected… while this bounce in economic activity is welcome, it also presents new challenges.” Trump renewed his satisfaction with Powell and the US dollar fell over the last week and continues weakening. June non-farm payrolls coming in at 4.8 million jobs, above the expected 3.2m gain. Unemployment rate also beat expectations and improved to 11.1%.
• Better US employment data helped the mood in the markets and the Aussie and Kiwi dollar benefitted and headed for their best week in a month as optimism for an unexpected recovery in developed world economies increased the risk-on tone. RBA official Guy Debelle said that Australia’s economy is likely to need more fiscal support as Covid-19 impact will be felt for a long time. However, RBA narrative didn’t negatively impact either currency.
• Over the last week, the Japanese Yen fell against G10 currencies. The fall started after China’s manufacturing activity rose in June, showing a gradual recovery from the Covid-19 induced slump. Furthermore, in “the land of the rising sun,” industrial production fell again in May and unemployment rose even as a nationwide state of emergency was lifted, showing the strong negative impact of Covid-19. The Yen fell almost 1% last week against an equally weighted basket of 7 currencies (Pound, Euro, US dollar, Loonie, Swiss Franc, Aussie and Kiwi dollar).

Looking ahead

• Trump could benefit politically from Andres Manuel Lopez Obrador’s visit to the US this week. Andres Manuel Lopez Obrador said his visit will kick off USMCA and he will travel to Washington even if Canada’s Prime Minister Justin Trudeau skips the meeting. Canadian Prime Minister Justin Trudeau said last Friday he was still unsure whether he would meet them in the US this week to celebrate a new North American trade treaty, citing concerns about possible U.S. tariffs on aluminium. The Mexican Peso appreciated almost 3% last week.
• According to Goldman Sachs, the US dollar might continue to decrease in value and the Norwegian Krone could be the best way to bet against the Greenback. Some of the reasons explained, are the way that Norway has to repatriate funds from abroad and the Norges Bank signalling that it will keep interest rates stable. The Norwegian Krone was the best performer over the last week against the US dollar, the question is if we are going to see further appreciation in the medium term.

Key market events this week

• AUD RBA Interest Rate Decision – Tuesday
• USD Initial Jobless Claims – Thursday
• CAD Unemployment Rate (Jun) – Friday