Summary: The Dollar came roaring back on safe-haven demand after data saw a massive hit from the coronavirus outbreak on US Retail Sales and manufacturing activity in New York. Fears that the damage from Covid-19 on the global economy would be long and drawn-out rose after the IMF downgraded growth more than expected. The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value against a basket of 6 major currencies, rose to 99.976 highs, before settling at 99.567 (98.879 yesterday), up 0.7%. Risk assets and currencies tumbled. The Aussie Dollar plunged 1.85% to 0.6320 from 0.6442, after hitting an overnight low of 0.6284. Against the Japanese Yen, one of the traditional safe havens, the Dollar was up moderately to 107.45 from 107.23. Sterling slumped 0.9% to 1.2530 from 1.2630 while the Euro settled lower at 1.0912 (1.0980) in late New York after falling as low as 1.08567. USD/CAD, under pressure yesterday, reversed, soaring 1.62% to 1.41324 at the NY close from 1.3885. The Bank of Canada held rates steady at an all time low of 0.25% as widely expected. The BOC added corporate and provincial bonds to its QE program. Brent Crude Oil slipped anew to USD 30.25 (USD 32.30) as recent OPEC production cuts were expected not enough to support prices in a global demand glut. The US Dollar extended its climb against the Emerging Market currencies. USD/ZAR (US Dollar- South African Rand) jumped 2.06% to 18.675 (18.300). Wall Street stocks slumped. The DOW was 2.4% lower in late New York to 23.449 (24,035) while the S&P dropped 2.67% to 2,777 (2,855). US bond yields plunged with the benchmark 10-year rate down 12 basis points to 0.63%. Germany’s 10-year Bund yield fell to -0.47% from -0.38% yesterday. Australia’s 10-year bond yielded 0.90% from 0.91% yesterday.
Data released yesterday saw Australia’s Westpac Consumer Sentiment fall to -17.7% in March from -3.8% in February. US March Headline Retail Sales plunged to -8.7%, a record drop and lower than expectations of -8.0%. February’s Sales were down -0.5%. The Empire State Manufacturing Index (factory activity in New York State) slumped to an all-time low at-78.2, more than double median forecasts at -35.2. US Capacity Utilisation slipped to 72.7, missing forecasts at 73.7 while Industrial Production was lower to -5.4% against expectations of -4.1%.
Coronavirus fatalities reversed the recent flattening with infections hitting 6-day highs in Spain while the death toll in the US climbed above 30,000.
On the Lookout: Asian markets will take the lead from the US with asset markets and stocks falling while the US Dollar will remain supported overall. Traders will focus on the economic data releases today. This morning’s spotlight will be on the Australian Employment report (11.30 am Sydney time).
The Australian economy is forecast to have lost between 33,000 to 40,000 jobs in the period up to March 19 from February’s +26,700. Economists expect Australia’s Unemployment rate to climb to between 5.4% and 5.5% from February’s 5.1%.
Other data releases today see Germany’s Final CPI and WPI (Wholesale Price Index) for March. Swiss PPI follows. Canada releases its Manufacturing Production and ADP Private Employment Change data. Finally, US reports released are Building Permits, Housing Starts and the Philadelphia Fed Manufacturing Index.
Trading Perspective: FX volatility picked up to where it left off prior to the long Easter weekend. We can expect more of the same in the days ahead. The US Dollar closed on a strong note despite giving back some of its gains in late New York trading. FX spotlight will be on the latest Covid-19 infections and fatalities as well as upcoming economic data.
We reported last week that market positioning had seen a build in US shorts, particularly against the Euro. This week’s COT report will be particularly interesting. Despite the Dollar’s fall against the Majors yesterday, we also observed the USD/EMS kept climbing. This particular dynamic needs monitoring. Expect the Dollar to consolidate its gains with high volatility within the recent ranges.
EUR/USD – Slip-Sliding Away, Spotlight on Covid-19 Curve – 1.0830-1.1000
The Euro managed to climb back above 1.0900 to 1.0912 in late New York following its overnight slump to 1.08567 lows. The shared currency found the air thin near 1.1000 after several failed attempts. It now has that slip-sliding away feel. The spotlight will be on the coronavirus impact on European countries, mainly Italy, Spain, France and Germany. Yesterday’s flattening Covid-19 curve seems to have reversed. Germany heads back to work on Monday.
EUR/USD sees immediate resistance at 1.0950 followed by 1.0990. A break above 1.1000 will see 1.1050 and 1.1100. Immediate support can be found at 1.0850 followed by 1.0800. A break below 1.0800 could see 2020 lows retested. We highlighted last week that net speculative Euro longs were at their biggest since October 2018. We look at the latest COT report when it comes out.
The shared currency has had difficulty breaking higher and the market’s net long positioning is one of the reasons why. Look to sell rallies in a likely 1.0830-1.0950 range today
AUD/USD – Up the Stairs, Down the Elevator – Jobs Data Next, 0.6200-0.6400
The Australian Dollar plunged to 0.62842 overnight low after opening up bid in Asia yesterday at 0.6442, failing to break through 0.6450. It was the proverbial up the stairs, down the elevator for the Aussie Batter. AUD/USD recovered in late New York to trade above 0.63 cents to 0.6320. While much of the Aussie Dollar’s climb was due to an overall weaker US Dollar, the weakness in Emerging Market currencies couldn’t be ignored. This also contributed to the 1.85% slump in the Battler.
The spotlight is on today’s Australian Employment report. The economy is expected to have lost from between 33,000 to 40,000 jobs in March (up to 19 March). February saw 26,700 jobs created. A loss of over 40,000 jobs will see the Aussie test 0.6200/20 first up. An employment contraction of less than 30,000 could see 0.6400 first up. US data releases later today will also impact risk assets, currencies and the Aussie.
AUD/USD has immediate support at 0.6280 and 0.6250. Strong support lies at the 0.6200/20 level. Immediate resistance can be found at 0.6370, 0.6400 and 0.6450. Look for a highly volatile trade between 0.6250-0.6380 first up. Am neutral at current levels, look to trade the range. Be prepared to go to either extremes and watch the EM and Asian currencies.
USD/CAD – Reverses, Oil Price Slide Fears Weigh, 1.40-1.43 Likely
The US Dollar soared against the Canadian Loonie following another fall in Oil prices with Brent slipping 5.68% to USD 30.30. OPEC’s weekend historic production cut agreement was the deepest ever but fell short of expectations. A global demand glut, unprecedented due to the coronavirus outbreak kept oil prices pressurised. While the Bank of Canada held interest rates steady, it maintained a dovish stance. According to a Reuters report the BOC added provincial and corporate bonds to its QE program, and said “it stands ready to adjust the scale or duration of its program if necessary.”
USD/CAD traded to an overnight low at 1.38763 before reversing sharply higher in volatile trade to 1.41324 before easing to settle at 1.4107 at the New York close. USD/CAD has immediate resistance at 1.4150 followed by 1.4200. A break above 1.4200 could see us back to 1.4300. Immediate support can be found at 1.4080, 1.4020 and 1.3980. Look for a high volatile trading range between 1.40 and 1.4300. Prefer to buy USD dips toward 1.4000 with oil prices looking shaky.
