Currency View by OFX

Last week’s news

• Last Wednesday the US suffered its biggest daily increase in new coronavirus cases since the start of the Covid-19 pandemic, recording a nationwide tally of 38,672 cases and prompting state governments to push the brakes on the easing of lockdowns. Global stocks sold off on fears that the rise in US cases could derail economic recovery. The FTSE 10, Europe Stoxx 600 fell 1% and Wall Street dropped around 2.5%, its worst one-day fall in over two weeks.
• Global trade experienced a huge decline in April as most big economies suffered from strict coronavirus lockdowns. Worldwide trades in goods dropped 12.1% in April compared with the previous month- the largest monthly contraction since records began in 2000. Data showed that the euro zone was the hardest hit area with trade volumes falling 20.1% month on month in April and 28.5% over the past year.
• The US senate unanimously passed a bill that would impose sanctions on Chinese officials who undermine Hong Kong’s semi-autonomous status, as well as the banks and state entities that do business with them. According to the WSJ, China has warned the US that pressure on the HK situation could endanger the phase-one trade deal.
• Over the last week, the Greenback showed a mixed performance, slightly increasing versus the Loonie, Yen, and Pound by +0.6%, +0.33%, +0.11% respectively. However, it fell by -0.44% versus the Aussie dollar and by -0.37% versus the Euro. The low volatility and mixed US dollar behaviour is represented by the decrease in the US dollar index of -0.19% and by the increase in the US dollar Bloomberg Index of 0.11%. The latter has exposure to emerging market currencies such as the Mexican Peso. The revived spread of coronavirus cases has once again become a concern that is affecting emerging market currencies against the Greenback.

Looking ahead

• Fed Chairman Jerome Powell and Treasury Secretary Steven Mnuchin will testify before the House Financial Services Committee this Tuesday about the economic stimulus released in response to Covid-19. On the same day, New York Fed President John Williams will be speaking on a panel with the International Monetary Fund about central banking in the age of Covid-19. ECB Executive Board member Isabel Schnabel and BOE Deputy Governor Jon Cunliffe will speak at the same event. On the following day, the Fed will publish the minutes of its June meeting. These events might bring some volatility to the US dollar and Euro crosses.
• Sophisticated market participants such as hedge funds continue to be bearish on the US dollar, increasing their net short position on the Greenback by the most since mid-January, according to data from the Commodity Futures Trading Commission for the week through June 23rd. At the same time, these market participants increased their net-long Euro position to the highest level since May 2018 and their net-long position on the Japanese Yen to the highest level in three weeks. The bearishness increased on the British Pound, but decreased on the New Zealand dollar, Australian dollar, and Canadian dollar.
• Liquidity in the FX market is still low following the high currency volatility seen in March due to Covid-19. According to Guy Debelle, Deputy Governor of the Reserve Bank of Australia, the liquidity in Group-of-10 currencies has only returned to, “…around 80% of where it was.” He added, “…the general consensus was the depth of liquidity is not what it was… liquidity is decent but it’s not completely back.” Keep an eye on his speech on Tuesday, the Governor will be discussing RBA’s policy actions and balance sheet.

Key market events this week

• AUD ABS Payrolls – Tuesday
• GBP GDP Growth Rate YoY (Q1) – Tuesday
• EUR Core Inflation Rate YoY (Jun) – Tuesday
• CAD GDP MoM & YoY Estimates (Q1) – Tuesday
• USD Manufacturing PMI (Jun) – Wednesday
• EUR Manufacturing PMI (Jun) – Wednesday
• GBP Manufacturing PMI (Jun) – Wednesday
• US FOMC Meeting Minutes – Wednesday
• EUR Unemployment Rate (May) – Thursday
• USD Non-Farm Payrolls (Jun) – Thursday
• USD Unemployment Rate (Jun) – Thursday