Currency View by OFX

Last week’s news

• Based on the minutes from January´s policy meeting, ECB policymakers were relatively upbeat on the Eurozone’s growth outlook, as incoming data suggested the worst could be over for the bloc’s economy. The challenge for the Euro came later as the coronavirus was in its very early stages back then. Additionally, the ECB governing council recognised that whilst there had been some positives, ‘the real economy remained weak and the improvement in hard data had been negligible’.
• New U.S Democratic nominee Michael Bloomberg came under a sustained attack from all sides last Wednesday in Las Vegas, as his rivals tore into the billionaire’s record on women and race and accused him of trying to buy the election in the most combative presidential debate to date. Elizabeth Warren led the charge by saying ‘I’d like to talk about who we are running against; a billionaire who calls women fat broads and horse-faced lesbians. I am talking about Mayor Bloomberg’.
• The U.S. dollar outperformed G10 currencies for the most part last week because, in general, the U.S. economy is less weak compared with the rest of the world’s economies, company earning numbers have been relatively stable and recession fears are greater in Japan and the Eurozone now, more so when considering their vulnerability to China and coronavirus, same story with the AUD. However, by the end of last week, market participants suddenly increased their expectations for Fed interest rate cuts, US equities fell from the highs, Treasury yields hit a new low for the year and the U.S. dollar weakened in the last minutes of trade.
• The positive catalyst that had initially helped commodity currencies such as the Aussie dollar and the Loonie started to fade away as concerns remain over the impacts of the coronavirus. China had planned further stimulus measures to shield its economy from the coronavirus outbreak and President Trump made a rare move by intervening to stop his own administration from blocking sales of General Electric-made jet engines to China and other proposed restrictions on American exports. Trump said that national security is too often being used by his officials to limit American companies’ abilities to transact with China. The off-shore Yuan fell 0.62% versus the Greenback over the last week, despite a small appreciation for the Yuan last Friday.
• According to the Office for National Statistics in the U.K., inflation in January rose to a six-month high as energy and house prices rose. Inflation came in at 1.8% last month, up from 1.3% in December, which might provide another reason to keep cut interest rates on hold in the near-term. The Bank of England’s next meeting is scheduled for March 26th.

Looking ahead

• The Aussie dollar weakened to a fresh 11-year low and the Japanese Yen finally pared losses last Friday amid more virus concerns and despite Japan’s February flash manufacturing, services and composite PMI data all slipping from last month. The Yen is usually inversely correlated to the Aussie dollar as the latter is a risk-sensitive currency; however, the AUD/JPY pair increased 0.35 percent over the last week, which makes it a perfect candidate for a reversal.
• There is still too much uncertainty about this virus and how the Chinese authorities are trying to contain it. So far, it has killed more than 2,300 people, infected nearly 80,000, and it is disrupting supply chains globally, leading to downgrades in global growth forecasts. IMF Managing Director, Kristalina Georgieva, said that the virus has led them to cut China’s forecast for growth to 5.6% from 6%.

Key market events this week

• USD Consumer Confidence Index (Feb) – Tuesday
• HKD Exports YoY (Jan) – Tuesday
• HKD GDP (4Q) – Wednesday
• USD Durable Goods Orders (Jan) – Thursday
• USD Gross Domestic Product Annualised QoQ (Q4) – Thursday
• EUR German Unemployment Change and Rate (Feb) – Friday
• Eurozone Consumer Price Index Core YoY (Feb) – Friday
• CAD Gross Domestic Product YoY (Dec) – Friday
• USD Advance Goods Trade Balance (Jan) – Friday
• EUR Eurozone Consumer Price Index YoY (Jan) – Friday