Summary: The Dollar eased in muted trade after the Labour Department reported the US economy lost a staggering 20.5 million Jobs in April. It was the steepest drop in payrolls since the Great Depression. The Unemployment rate rose to 14.7% from 4.4% in March. Though dire, the numbers were smaller than economists had forecast, 21.5 million job losses, and a 16% jobless rate. Risk appetite turned positive as markets focussed instead on the reopening of nations after several weeks of lockdown. Sentiment though remains fragile, with traders monitoring the reopening(s) cautiously. Although we have a relatively light Monday, the week ahead sees a data deluge with some FOMC members speaking on the economic outlook amidst Covid-19. The beleaguered Euro finished with moderate gains on the broad-based US Dollar weakness to 1.0840 from 1.0830. Former ECB Vice President Vitor Constancio said that the European Central Bank has responded well to the German Court ruling on the ECB’s bond buying program. Sterling rallied to 1.2410 from 1.2365. On Sunday, UK Prime Minister Boris Johnson said that there would be no immediate end to the lockdown as he unveiled a conditional plan to reopen on Wednesday. The Australian Dollar extended its rally, gaining a further 0.29% against the Greenback to 0.6530 (0.6495). The Kiwi was up 0.4% to 0.6130 (0.6087) ahead of Wednesday’s (13 May) Reserve Bank of New Zealand policy meeting and rate statement. The RBNZ is widely expected to keep its OCR (Overnight Cash Rate) unchanged after slashing the rate by 0.75%, to 0.25% in March. Asian and Emerging Market currencies all saw gains versus the US Dollar. Against the Thai Baht, the Dollar lost 0.4% to 32.20 (32.40). Wall Street stocks rallied. The DOW finished up 1.73% to 24,430 (23,985) while the S&P 500 finished 1.54% higher to 2,938. (2,892). The yield on the benchmark US 10-Year treasury note rose four basis points to 0.68%. Germany’s 10-year Bund yielded -0.53% from -0.55% Friday.
Other data released on Friday saw Germany’s Trade Surplus slump to +EUR12.8 billion from +EUR 21.6 billion. Canada’s Payrolls plunged to -1,993.8 million from -1,010.7 million, although it was better than forecasts of -4.0 million. The Unemployment rate climbed to 13.0% from 7.8% but bettered forecasts of 16.0%.
On the Lookout: Spotlight falls on the data deluge in the week ahead of us, Fedspeak, and the progress of the reopening of nations from the Covid-19 lockdown. Monday kicks off with limited data released amidst risk-on although sentiment is still fragile.
China’s central bank signalled more policy measures so support its coronavirus ravaged economy. In the US, top economic advisor Larry Kudlow told the ABZ’s “This Week” program that the White House had begun informal talks with Democrats and Republicans in Congress about more Covid-19 economic relief legislation.
Today kicks off with New Zealand’s Electronic Card Retail Sales report for April as well as ANZ’s Business Confidence Index. Chinese New Loans for April and Japanese Leading Indicators as well as the BOJ’s Summary of Opinions round up Asia’s data releases. Europe sees Italy’s Industrial Output.
Tomorrow (12 May) sees US Headline and Core CPI reports. FOMC members Quarles and Harker are scheduled to speak. The RBNZ policy rates meeting and Monetary Policy Statement as well as UK GDP and US PPI are Wednesday’s (13 May) main events.
Thursday (14 May) sees Australia’s Employment report, and New Zealand’s Annual Budget release.
Friday sees US Headline and Core Retail Sales.
Trading Perspective: Expect a muted start to FX trade in Asia. While markets closed on Friday with a risk-on stance, sentiment remains fragile. Traders will focus on any fresh US-China trade headlines.
While the Dollar ended on a weak note on Friday, it will need fresh impetus to drive it much lower. In the current environment we can expect the currencies to consolidate with a short-term pullback in the US Dollar likely.
AUD/USD: +Risk Drives Battler Up, Spotlight on US-China Trade, Aussie Jobs Report
The Aussie continued to benefit from the double treat of positive risk sentiment and broad-based US Dollar weakness. AUD/USD gained 0.3% to 0.6530 from Friday’s opening at 0.6495. Overnight high traded was 0.65478. The Aussie has maintained an overall advantage against the Greenback. Australia remains on the front foot as it slowly reopens its economy following the Morrison government’s success in controlling the spread of Covid-19.
Headwinds for any further AUD/USD gains beyond the immediate resistance at 0.6550 and a stronger barrier at 0.6600 cents are any negative developments on the US-China trade relations, where tensions still loom. Australia’s test comes later in the week with the release of the country’s Employment report and unemployment rate.
AUD/USD has immediate support at 0.6500 followed by 0.6460 and 0.6420. Immediate resistance can be found at 0.6550 and 0.6600. Look for a pullback with a likely range today in the Aussie of 0.6480-0.6550.
USD/CAD – Looked to US Payrolls, Meantime Canada’s Jobless Doubled
Against the Canadian Loonie, the US Dollar slid 0.45% to 1.3930 from Friday’s 1.3985 as traders focussed on the US Job losses, driving USD/CAD lower. Canada’s Employment showed Job Losses of just under 2 million (1.994 million) in April from March’s Job loss of 1.01 million. The Unemployment rate in Canada increased to 13.0% from 7.8%. Although both reports were slightly better than median forecasts (Jobless expected, -4.0 million, Jobless rate expected 18.0%), they nearly doubled the previous records in March.
USD/CAD saw little movement in muted traded compared to the past few days. The US Dollar slipped to 1.39006 overnight before rallying to close at 1.3932. Overnight high traded was 1.39903. Expect the USD/CAD to consolidate around current levels with immediate resistance formed at 1.3970 followed by 1.4000. Immediate support can be found at 1.3900 and 1.3870. Look for a likely trading range today of 1.3900-1.4000. Prefer to buy USD dips.
EUR/USD – Continues to Struggle vs Weak USD, ECB QE Weighs
The Euro underperformed against the overall weaker US Dollar, finishing with modest gains at 1.0840 from Friday’s 1.0830. Trading was subdued with an overnight low recorded at 1.0815. EUR/USD bounced from there on the broad-based Greenback softness to 1.0876 before slipping to 1.0840 in late New York. Despite the market’s brighter risk sentiment on easing restrictions as countries start to reopen, the Euro struggled to gain ground against the Greenback.
Apart from a speculative long market positioning, the drama involving Germany’s high court ruling on the ECB’s bond buying program weighs on the shared currency. The ruling cast a shadow on the ECB’s plan to support the economy, ravaged by the coronavirus outbreak. Uncertainty over EU stability also weighs on the Euro.
EUR/USD has immediate resistance at 1.0880 followed by 1.0910. Immediate support can be found at 1.0800 and 1.0770. Until we see a shake-out of the speculative Euro long positions, any sustained EUR/USD rally will be sold into. Look for a likely range today of 1.0780-1.0880. Prefer to sell rallies, the shared currency is not out of the woods yet.
