The Mid-Week Wrap Up – Coronavirus and Impact on the Major CurrenciesUpdates from China and beyond on the coronavirus continue to grip as central banks and governments attempt to downplay longer-term impact.
It’s been a mixed week for the global financial markets. A jump in risk appetite, off the back of coronavirus numbers from China, drove demand for riskier assets.
The EUR suffered, however, as doom and gloom shrouded the region. It was not just sentiment towards the economy, but also a rise in geopolitical risk that did the damage…
Are there any major events on the economic calendar that could impact the major currencies?
After a quiet start to the week, it gets busier for the Greenback. Key stats include January inflation figures due out on Thursday and retail sales figures due out on Friday.
We can expect retail sales figures to have a material impact on the Dollar. During testimony to Congress, FED Chair Powell was clear that the FED would stand pat on monetary policy should economic indicators support the view that the U.S economy would likely be unscathed from the coronavirus outbreak.
On Friday, consumer sentiment figures will also need to support the positive outlook on spending.
January wage growth and nonfarm payrolls, low-interest rates and low mortgage rates should support spending near-term.
For the EUR, the focus will be on 4th quarter GDP numbers due out of Germany on Friday. Other than a 5-month high composite PMI for January, economic data has been disappointing, to say the least.
We could see the EUR under more pressure at the end of the week should Germany’s economy contract in the 4th.
When considering the likely effects of the coronavirus on China’s economy and demand from overseas, it is going to need to be quite a stimulus package to offset weakness in the 1st quarter.
The Eurozone economy is unlikely to be as resilient as that of the U.S economy. We may even see Trump turn the screw on the EU and try to get a favorable trade agreement…
For the Pound, we saw that the UK avoided a contraction in the 4th quarter, delivering support.
Coupled with decent employment figures and survey-based PMI numbers, the BoE looks vindicated in standing pat.
With no material stats due out through the rest of the week, however, the focus will likely return to Brexit and trade.
The good news is that the EU’s Van Der Leyen is looking for a remarkable trade agreement with Britain while mocking Johnson.
It may ultimately boil down to what strings are attached, though the British PM may prefer to go without an agreement than to be tied to the EU.
Interestingly, the EU could come under pressure should Britain make sound progress beyond the EU. The last thing that the EU needs is for Britain to be able to go it alone and not even need the EU as a partner, or at least a material one.
All in all, there are too many uncertainties near-term, however, to allow the Pound to break out from current levels.
Seems like it was a quiet beginning of the week. How have other countries performed during this period? Let’s discuss the commodity currencies.
It’s been quite a start to the week for the commodity currencies.
For the Aussie Dollar
Business and consumer sentiment figures on Tuesday and Wednesday provided much-needed support. For the RBA, rate cuts last year were to spur both business investment and consumer spending. Weak confidence across the board would certainly question whether more rate cuts would be needed.
Rain in regions devastated by bush fires led to reports that the fires are contained supporting the improved sentiment. This was also Aussie Dollar positive.
Over the remainder of the week, there are no stats to consider, leaving the Aussie in the hands of risk sentiment. News from China and beyond on the coronavirus will remain the key driver.
For the Kiwi Dollar
The RBNZ followed on from a more hawkish than anticipated RBA from last week. While holding rates unchanged, the RBNZ talked up the economic outlook for the 2nd half of the year. The RBNZ also viewed the impact of the coronavirus as short-term, aligned with the RBA.
This view may be on the assumption that Beijing will deliver a sizeable enough stimulus package to mute the effect of the virus on the economy.
On the data front, credit card retail sales disappointed ahead of the RBNZ decision on Wednesday but had a muted impact as the Kiwi surged.
Later in the week, the focus will shift to the Business PMI numbers. Following the RBNZ’s outlook on the economy, the markets make be somewhat forgiving to any weak numbers…
For the Loonie
It’s been a quiet week on the economic data front, with stats limited to housing sector figures. While upbeat, there was a limited impact, as sentiment towards the global economy and impact on crude oil prices provided direction.
With no material stats due out over the remainder of the week, the focus will remain on OPEC. OPEC slashed its demand forecasts. While this is traditionally negative for the Loonie, expectations are for OPEC and Russia to cut output to support prices.
Over the remainder of the week, the IEA monthly report and updates on the coronavirus will remain the key driver.
It was an uncertain beginning of the week for the commodity currencies. In the meanwhile, how have the Asian currencies done?
For the Japanese Yen
There has been little influence from the economic calendar, with stats limited to current account figures that failed to move the dial.
The lack of stats left the Yen in the hands of the news wires that dictated market risk sentiment in the week.
We see the Yen set for a surge should there be a marked pickup in new coronavirus infections and increases in the mortality rate.
Last week, we had heard that the Chinese government was looking to change the narrative and shift focus away from the numbers. The better than anticipated coronavirus cases in the early part of the week may have been just that…
Elsewhere, there was an increase in the number of cases, which suggested that the virus had yet to peak.
For the Chinese Yuan
We’ve seen the bounce back to sub-CNY7 against the greenback. This came off the back of a jump in inflation and assured support from Beijing to limit the effects of the virus on the economy.
Assuming that there are no major shocks, this strengthening should continue, particularly if Beijing delivers a sizeable stimulus package.
China has returned to work and a partial tariff rollback at the end of the week will need to be met with overseas demand to make it meaningful.
On the data front, new loan figures at the end of the week will garner attention. The markets are expecting a jump that would support Beijing’s assurances of support.