Summary: The Dollar and Wall Street stocks did a U-turn, sinking after reports that COVID-19 related deaths rose to 11 in the United States. US Treasury yields sank to record lows as haven FX and assets rose. The benchmark US-10-year yield sank to as low as 0.90% dragging the Dollar down with it. The Dollar Index (USD/DXY), a favoured gauge of the Greenback’s value against a basket of foreign currencies slumped 0.6% to 96.75, its weakest close since January 2. Against the haven sought Japanese Yen, the US Dollar plunged 1.16% to 105.965 in early Sydney trade this morning. The EUR/USD pair climbed above the 1.1200 resistance level, currently trading at 1.1228, up 0.81%. Risk FX led by the Australian Dollar dipped, the Battler settling around 0.6600 cents, down 0.44% from its highs at 0.6636. USD/CAD rose modestly to 1.3425 (1.3400) following yesterday’s Bank of Canada rate cut. Against the Swiss Franc, seen as the other haven currency, the Dollar slid 0.8% lower to 0.9488 (0.9568). Investor confidence was shaken as coronavirus cases continued to rise in the US despite efforts to contain the outbreak. The CBOE VIX Fear Index jumped to 8.2 points to 40.14 before settling at 39.62, a rise of 23.85%. Wall Street stocks tumbled as travel related shares took a beating. The DOW was 3.1% lower to 26,125 (26,745), while the S&P 500 dropped 3% to 3,018 (3,092).
Data released yesterday saw Australia’s February Trade Surplus rise to 5.21 billion, beating forecasts of AUD 4.8 billion. January’s Trade Surplus was revised up to 5.38 billion (from AUD 5.22 billion). US Factory Orders in February fell to -0.5%, missing expectations of -0.2% and January’s 1.9%. Next up: US February Payrolls.
On the Lookout: Expect more fireworks ahead with the coronavirus spread continuing to dominate all markets. Risk assets have whipsawed this week as volatility climbed. The action was, is and will continue to be fast and furious. Today’s big data event is the US Payrolls number.
Other data releases today are Australia’s February Retail Sales and Japan’s Leading Indicators.
Euro area data sees German Factory Orders and French Trade Balance. UK Halifax House Price Index for February follows. Canada’s Employment numbers are next with Employment Change, Unemployment rate and Trade Balance and IVEY PMI. US Payrolls follows with Non-Farms Employment Change, Unemployment Rate and Average Weekly Earnings. US Trade Balance round up today’s economic reports.
In the FX space, the Dollar took a beating, and with US yields currently at all time lows, expect further pressure on the Greenback, specially against haven FX leaders the Yen and Swiss Franc.
Traders will focus on US Payrolls, released later today. The US economy is expected to have generated a median 175,000 Jobs in February from January’s 225,000. The Unemployment rate is forecast to be steady at 3.6%. Wages (Average Hourly Earnings) is expected to have risen 0.3% from 0.2%. Any Payrolls number under 175,000 will see traders dump more US Dollars. Watch for revisions to previous months as well as the Wages number.
US bond yields dropped further. Other global rivals were also lower but, once again, not to the extent of the fall in US rates. This will keep the Dollar broadly capped against its Rivals, also to varying extents. Haven currencies will have the most potential for gain, while risk FX will lag.
USDCAD: The US Dollar finished with modest gains versus its northern neighbour’s currency, the Loonie. Thanks for Bank of Canada Governor Stephen Poloz’s comments following the Canadian central bank’s decision to slash its Overnight Cash rate by 0.5%. Poloz said that the BOC is ready to cut rates further. He added that the BOC was leaning toward a rate cut even without the coronavirus.
Canadian 10-year bond yields were down 9 basis points to 0.86%, matching the extent of the drop in the key US 10-year rate.
The Bank of Canada will try and keep up with the US Fed in trimming interest rates. However Canadian 10-year rates at already lower. That prevents them from slashing aggressively. This will cap any USD/CAD gains. Canada sees its Employment report released today. The Canadian economy is forecast to have created 11,000 jobs in February from January’s 34,500. The Jobless rate is expected to climb to 5.6% from 5.5%. Anything better than the expected numbers above will see the Canadian Loonie catch up with the US Dollar downtrend. Specially if the US Jobs number is unable to save the Greenback. Interesting times, “lets get ready to rumble.”
USD/CAD traded to an overnight high at 1.3438, closing at 1.3430 in New York before slipping in early Sydney to 1.3407. USD/CAD has immediate resistance at 1.3450 followed by 1.3480. Immediate support can be found at 1.3380 (overnight low traded was 1.33829). The next support level lies at 1.3320. Look for consolidation within a likely 1.3370-1.3430 range today. Prefer to sell USD/CAD rallies, a break of 1.3350 could see 1.3250.
USD/JPY took a battering with risk assets plunging to an early Sydney and 6-month low at 105.974 in early Sydney trade. The Dollar closed at 107.40 yesterday, slumping to 106.45 in late New York. The drop in the benchmark US 10-year yield to 0.91%, down 9 basis points, contrasted with that of Japan’s JGB 10-year rate, at -0.12% (up 2 basis points). Wall Street’s collapse saw relentless selling in the USD/JPY pair. The Japanese Nikkei share market plummeted to 20,810 from 21,310 yesterday as stock investments by foreigners continued to fall.
USD/JPY has come off from above 112.00 in mid-February to this morning’s low at 105.974. One thing that will concern the Bank of Japan is the speed with which the Yen has climbed, and Japanese stocks have dropped. My many years of trading FX are telling me to expect the Bank of Japan Governor Haruhiko Kuroda and his colleagues at the Ministry of Finance to initially speak out against the Yen’s swift advance. Verbal intervention. The next question is when and how they will act. Expect more volatility in this currency pair with US Payrolls out tonight.
USD/JPY has initial support at 105.80 followed by 105.50 and 105.00. Immediate resistance can be found at 106.50 (key breakdown level) and 107.00. Look to trade a choppy 105.70-106.70 range. Be prepared to trade both sides. And watch for the BOJ.
AUDUSD : The Aussie Battler fought its way through the plunge in risk assets and the flight to havens. AUD/USD closed at 0.6593 in New York before edging higher to 0.6615 currently. Broad-based US Dollar weakness and a short speculative Aussie market has kept the Battler firm despite the market’s risk-off stance.
Australian data has mostly outperformed this week. While Building Approvals and the Current Account disappointed, upbeat Q4 GDP and Trade Balance have supported the currency. Australian Retail Sales (January) is released today. The COVID -19 effect may not appear until February’s report.
The RBA trimmed its Overnight Cash Rate by 0.25% on Tuesday to 0.50%. The next day, the Fed slashed it’s key Fed Funds rate by 0.5%.
We reported earlier this week that net speculative Aussie short bets rose to -AUD 43,852 contracts from -AUD 37,477. AUD/USD has been battered since the start of the year when the bushfire crisis rose to unprecedented heights.
AUD/USD has immediate resistance at 0.6640 (overnight high 0.66367) followed by 0.6680. Immediate support can be found at 0.6585 (overnight low 0.65839). The next support level lies at 0.6545. Look to trade a likely range of 0.6590-0.6650. Prefer to buy dips, the Battler will continue its fight.