Currency View by OFX

Last week’s news

  • Commodity-linked currencies tumbled on Friday as oil and copper slid on renewed concerns that the coronavirus outbreak will weaken global growth, which saw JP Morgan’s Emerging Currencies Index hit its lowest level in a decade. A similar index from MSCI, posted its largest daily decline since August 2018, with the Russian ruble, South African Rand, Chilean and Colombian pesos all leading losses as the rebound in risk-assets from the beginning of the week proved fleeting. The ruble was also dragged lower as the Russian central bank cut rates for its sixth time in a row.
  • China announced it will halve tariffs on some U.S. imports as it moves to implement a ‘phase one’ trade deal with the Trump administration and cushion the economic fallout from the coronavirus epidemic. The move spurred a brief risk rally in the Asian session. Washington also plans to cut tariffs on some Chinese goods on February 14th, according to a notice by the Office of the U.S. Trade Representative.
  • Donald Trump was acquitted on his impeachment charges by the Republican held Senate. However, he was denied the full support of the Republicans as Mitt Romney became the first senator in U.S. history to vote to convict a president from his own party. House Speaker, Nancy Pelosi, was ignored by Trump as the vote was announced and she attempted to shake his hand and retaliated by ripping up Trump’s tabled speech after he addressed the House.
  • The U.S. labour market started 2020 in great shape adding more jobs than forecasted in Jan. Non-farm payrolls increased by +225k in January, much stronger than the average predicted figure of +160k. Unemployment ticked up to 3.6% from 3.5%, however this was offset by the news that wage growth had pushed back above 3%. The stronger than expected job and wage figures may possibly have a positive knock-on effect to consumer confidence, GDP and output figures in the earlier part of this year. The USD gained.
  • BoC Governor Carolyn Wilkins said the Canadian economy has had mixed data recently, inferring that it is not improving, but it is not worsening. She referenced the coronavirus and mentioned that similar outbreaks had affected the country in the past, noting that related economic impacts could be seen through several channels, such as lower oil prices and lower commodity prices. She also noted less travel, so the tourist industry and the transportation industry could find themselves a little offside their forecasts, impacting supply chains in Canada.

Looking ahead

  • A rally in China’s offshore yuan failed to break its first important technical level against the JPY last week. The Chinese currency saw a brief recovery early last week versus the yen which failed to break a key Fibonacci resistance level stemming from its late January slide. This move suggests that traders believe that the worst of the coronavirus spread is not yet behind us and that further downside in the yuan is a possibility.
  • Clearly it was not a positive week for the Pound, which lost 2.38% last week versus the U.S. dollar. Market participants are prioritizing a strong dollar and ignoring better economic data in the U.K., which has reduced the chance of a rate cut; however, there are some concerns about post-Brexit EU-UK relations, such as the likelihood of the European Union enforcing rules that could impact London’s banking sector. Furthermore, Michel Barnier, the Chief EU Negotiator, said that to achieve easy market access, Britain must align itself with the bloc.
  • A likely possible peace deal in Libya threatens to put even more pressure on the price of crude oil this week, which would also put further pressure on the Loonie and Norwegian Krone. The OPEC and Russia have not yet provided a response to the coronavirus outbreak, meanwhile the coronavirus continues to hurt crude oil demand and prices. The sudden surplus in global crude production would have been worse if it hadn’t been for the shut down due to recent conflicts in the middle east. Additionally, if Libya can restart exports, this will further complicate the OPEC countries to be able to implement credible output cuts.
  • According to the Commodity Futures Trading Commission, in the futures markets, there were more flows buying U.S. dollar and Japanese Yen, but more contracts selling Euros, Loonies, Aussie dollars, Pounds, Mexican Pesos and Kiwi dollars. This data, which reflects up to last Tuesday even though it was released last Friday, indicates a clear tilt towards risk aversion, clearly showing the returns in currencies last week.

Key market events this week

  • AUD NAB Business Conditions & Confidence (Jan) – Tuesday
  • GBP Gross Domestic Product YoY (Q4) – Tuesday
  • RBNZ Interest Rate Decision – Wednesday
  • USD Consumer Price Index YoY (Jan) – Thursday
  • MXN Interest Rate Decision – Thursday
  • EUR Euro-Zone Gross Domestic Product YoY (Q4) – Friday
  • US Retail Sales Advance MoM (Jan) – Friday
  • US University of Michigan Sentiment (Feb) – Friday

  
 

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