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Coping with Covid

Hints for further stimulus

Last week, the UK Chancellor, Rishi Sunak, hinted that more stimulus could be on the way to support the British economy. Three former Chancellors also suggested levels of unemployment could double to hit levels not seen since the 1980s as the UK feels the weight of the biggest recession in recent centuries. Towards the end of the week, Sterling softened against other currency majors. This week, several key pieces of UK data could influence the Pound, such as mortgage figures, growth rate, and consumer confidence at the start of the week. In later sessions, UK manufacturing and service sector data will print, which could create some significant movement. The Bank of England will also release its latest financial stability report which may play into the Pound’s fortunes. Brexit is still a risk for the British currency, so any developments or reports from the UK and EU could create GBP/EUR movement. The Pound begins the week trading at interbank levels of 1.0990 versus the Euro, and 1.2315 against the US Dollar.

First weekly gain in three weeks

Towards the end of the week, the Euro was heading towards its first weekly gain in over three weeks versus the US Dollar. The common currency managed to gain on the back of comments from the European Central Bank’s June policy meeting, which offered cautious comments and extension of bond purchase programmes. With a further jump in US coronavirus cases, the Euro traded in a relatively tight range versus the US Dollar on Friday. At the start of this week, sentiment data and inflation rate numbers for both the Eurozone and Germany could provide some opportunity for EUR exchange rate movement, followed by German and Eurozone labour market and retail stats in later sessions.

Influential data ahead

The Federal Reserve released its latest banking stress test last week, giving a stark warning about the amount of loan losses the pandemic could create—somewhere in the region of $700bn. Markets generally appeared to brush off the news, but the US Dollar remained muted as the number of coronavirus cases continued to increase at a rapid pace. US Consumer Confidence, manufacturing indexes, and Non-Farm Payrolls data will be out in the week ahead, which could create significant movement for the US Dollar. Additionally, the Federal Reserve will release the minutes from its most recent meeting, which could create some further cause for movement. The US Dollar is often seen as a safe-haven asset, so any further uncertainty or global developments can cause more demand.

RBNZ dovish, tries to talk Kiwi lower

Riskier currencies such as the Australian and New Zealand Dollars have been largely subject to global developments and risk sentiment. Given the Oceanic nations have such a strong trade link to China, developments there have also been influencing the AUD and NZD exchange rates. Last week, the Reserve Bank of New Zealand softened the Kiwi currency by saying risks to the economy remained to the downside, suggesting it would be ready to step in to deliver more stimulus if needed. The central bank opted to leave interest rates at 0.25%, after the economy contracted by 1.6% on the year in the three months to March. The RBNZ said: ‘The economic risks remain to the downside, despite some… data suggesting that demand has increased since the end of alert level two restrictions.’ The central bank also appeared to attempt to talk the Kiwi currency lower, saying its recent appreciation could put ‘further pressure on export earnings’. The Australian Dollar has also recently appreciated against the US Dollar.

In the week ahead there are a few medium-tier Australian stats including manufacturing and retail sales prints which may influence the Aussie Dollar. It’s a similar story in New Zealand, with business sentiment and building data due for release that could cause some moderate movement. Both currencies will likely remain sensitive to any further coronavirus and global developments. The Pound’s trading at levels of 1.7915 versus the Australian Dollar, and 1.9180 against the New Zealand Dollar.

Losing streak

The Canadian Dollar extended losses against the US Dollar last week, hitting a 10-day low on Friday. Concerns over new coronavirus cases in the US and China hit oil prices—Canada’s largest commodity. The Canadian Dollar was also dented by concerns that the US might bring in tariffs on aluminium, as well as a downgrade by credit ratings agency, Fitch. In the week ahead, the April Canadian growth figure will be released, followed by manufacturing and balance of trade stats later in the week. The 1st will see Canadian markets closed for Canada Day, so market movement may be muted. The Pound’s trading at levels of 1.6830 versus the Canadian Dollar.