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USD Weakness

Direct FX

Worldwide coronavirus cases surpass 97.4 million with over 2,087,000 official deaths.

Currency markets have been relatively subdued over the past week with the broad theme of USD weakness still very much in play. US equity markets remain well supported with the S&P 500 trading to an all-time high in recent days. Markets are keen to see details about Biden’s fiscal spending package, but it’s fair to say most expect it to undermine the USD further over the coming months. Biden’s advisers have also been signalling to Wall Street donors that tax increases will likely come later in the year, but these may depend on the economic recovery and Covid’s impact on the economy. To that end we saw some mixed data from the US overnight. On the positive side the Philly Fed Manufacturing index showed solid gains jumping to 26.5 from 11.1 prior. But countering this was the harsh reality of the employment situation with weekly unemployment claims remaining above 900k. 

Central banks around the world remain comfortably ‘on hold’ for the foreseeable future, although hints of optimism are starting to creep into their forecasts for 2022. The Canadian dollar gained this week on the back of the Bank of Canada’s (BOC) forecasted increase for GDP in 2022. They now predict GDP to be 4.8% from 3.7% prior during 2022, although they are under no illusions that the first quarter of this year will be very difficult. The BOC believe that under their current base case scenario they won’t need as much QE over time. The ECB also held their rate meeting this week, with no change in policy announced. Legarde was keen to underscore that they will remain in the market buying bonds until at least March 2022. She did however sight Covid vaccines and the Brexit deal as positive going forward. While we haven’t heard much from the RBNZ in recent weeks, the market is starting to discount the chance of any further rate cuts this year. Many forecasters are now expecting the NZ central bank to remain on hold during 2021, with the next move a rate hike some time in 2022. 

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