Weekly FX Wrap: currency markets still surfing 2nd waves on the reopening tide

Analysis details (15:29)

USD

A somewhat truncated, but still turbulent week for the Dollar with the usual month end rebalancing embellished by the fact that the June/July turn also aligns with the crossover from Q2 to Q3 and H1-H2. However, bank models only signalled moderate Greenback selling for portfolio purposes, and not across the board as positions were skewed the other way in Euro terms to the benefit of the DXY given its prominent weighting in the basket. Hence, the index actually hit highs of 97.808 on Tuesday before losing momentum and reversing to a 96.801 low post-ADP/pre-NFP amidst a broad upturn in risk sentiment. To recap, the former actually missed consensus, but was more than compensated by a huge upward revision to the previous month, while the latter was better than forecast again both in headline terms and on the unemployment rate. Nevertheless, the more timely weekly jobless claims tally disappointed vs expectations and along with the ongoing rise/spread of COVID-19 cases across US states (including record numbers in some), economic recovery optimism is tinged with concern over the potential longer term damage if hot-spots continue to flare up and force a return to lockdown. Indeed, Fed chair Powell remained cautious about the outlook in latest testimony and FOMC minutes retained a distinctly dovish tone, albeit acknowledging further evidence of a rebound, like the manufacturing ISM and pending home sales on top of monthly labour data. Consequently, the Buck is caught between stalls as a safe-haven alongside the Yen and Gold to varying degrees awaiting coronavirus developments, updates on various vaccine trials, and ultimately ‘confirmation’ that the worst is over.

AUD/NZD/SEK/NOK

Friday’s best G10 performers and all on course to end the week much closer to best levels than worst, with the Aussie boosted by Chinese and domestic PMIs plus a near reversal in retail sales from April’s dire depths ahead of the RBA policy meeting next Tuesday. Meanwhile, the Kiwi is flying high on NZ’s comparative success in containing the pandemic to the point of fully removing restrictions after recording zero contaminations and the Swedish Crown is also deriving some relief from a slowdown in daily rates of infection and decent PMI bounces following knee-jerk weakness on Wednesday when the Riksbank rolled out more QE and extended the asset purchase timeline to mid-2021 from the end of this year. Similarly, the Norwegian Krona is back on track after a recent sharp bull retracement against the backdrop of mostly firmer crude price evolution and relative Euro underperformance.

JPY/CAD/GBP/EUR/CHF     

As noted above, the Yen has been largely subject to a combination of general risk sentiment and Dollar moves in tandem with US Treasury yields and curve undulations rather than specifics, so Usd/Jpy is tracking the DXY between a narrow 108.16-107.05 range and currently bang in the middle. Conversely, the Loonie is at the upper end of a 1.3545-1.3704 band with some impetus from the aforementioned buoyancy in oil, a much narrower than anticipated Canadian trade gap and encouraging PMI. Elsewhere, the Pound is clinging to the bulk of its recovery gains from circa 1.2250 vs the Dollar, though Cable is back under 1.2500 and Sterling is still unable to breach the psychological 0.9000 level against the Euro (vs 0.9176 at the other extreme) amidst ongoing no deal Brexit jitters following more talks between the UK and EU leaving major divergences. Turning to the Euro itself, Eur/Usd is hovering above 1.1200 from just over 1.1300 in the run up to NFP yesterday even though Eurozone PMIs were broadly better than forecast or indicated via preliminary releases and Germany’s Parliament ruled in favour of ECB QE against objections from the CC over proportionality. Instead, the single currency seems consigned to inversely tracking the Greenback until such time that the EU resolves its differences on the recovery fund and/or the ECB shifts from its accommodative stance. In contrast, the Franc has fared better across the board, but with Swiss CPI softer than expected and even more deflationary, and the manufacturing PMI falling further below 50.0, this is likely to keep the SNB busy and intervention levels will be apparent via Monday’s weekly update of sight account bank balances.

EM 

Aside from the usual fluctuations in risk, the Usd, underlying commodities and geopolitical factors, regional currencies have had some independent impulses to digest, including Russia overwhelmingly adopting the new constitution, stronger than expected Turkish CPI underscoring the CBRT’s decision to pause easing and perhaps ending the cycle early. Meanwhile, SA GDP and current account data came in significantly better than anticipated or feared, but the cost of trying to combat COVID-19 continues to mount in Brazil to the detriment of public finances not to mention the human and economic cost.

03 Jul 2020 - 15:29- Research Sheet- Source: Newsquawk