FX News

Risk Currencies Push Higher

Direct FX

Day 11-  Level 3 NZ lockdown

Risk currency pairs ruled the roost for most of last week with the Australian Dollar, New Zealand Dollar and the Canadian Dollar all doing well against the major currencies, the big mover being the Aussie outperforming the Pound 3.0%. The US jobs report confirmed a terrible April for Job losses with a further 20.5M Americans filing for unemployment. The Unemployment rate has surged to WW2 high of 14.7%. The English Pound has recovered most of the March losses amid coronavirus infections, pivoting around the 1.25 area against the US Dollar. We do however see limited movement north in 2020 for the Pound as economic conditions worsen with covid-19 in the UK and Boris struggles to piece together post Brexit trade negotiations.

The Euro should strengthen towards the middle of the year and beyond as risk appetite returns to markets as the global economic outlook improves. The reduced interest rate advantage over other currencies of the US Dollar in the medium to long term as the US Dollar becomes overvalued argues for lower demand for the big dollar as the attractiveness of other “risk” style currencies provide better investments.
NZ Cabinet reviewed the Covid-19 level 2 alert level yesterday with level two living to begin again from Thursday 14th May. The RBNZ will review current monetary policy on Wednesday when we expect them to announce an increase to the current bond-buying programme to 60Bper year up from the increase of 30B which was announced in March. The RBNZ should also give us hints as to their plan with forward guidance which could be a plan to keep interest rates on bonds at the same or lower for a set period of time.

• NZ will transition into level 2 on Thursday this week
• Cafes and restaurants will reopen under level 2 but with strict distancing rules, domestic travel will also be allowed
• US Non-Farm Payroll figures released -20.5M versus 22.0M for April down 870k from expectations, the worst decline since the Great Depression
• The US Unemployment rate jumped to 14.7% the highest of record since the 1940’s
• The Bank of England voted unanimously to keep rates at 0.10% with the bank setting policy at 2.0% inflation target to help with growth and employment
• Canadian unemployment has surged to 13.0% (18.0% expected) from 7.8% in April figures with 2M people being added to the jobless- the numbers were not as bad as markets feared  
• NZ Retail Card spending for April is down 47.5% m/m, March was -4.6%, the result was not unexpected
• Crude Oil (WTI) extended gains leading into the weekly close to 24.45 per barrel

Major Announcements last week:

  • Aussie Cash Rate remains at 0.25%
  • Bank of England leave rates unchanged at 0.10%
  • US Non Farm Payroll prints at 20.5M unemployed for April
  • NZ Business Confidence Index released more optomistic than predicted
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