Commodity currencies down as OPEC+ deal fails to soothe demand concerns

Commodity currencies slipped against their safe-haven rivals such as the dollar and yen on Monday as a record output cut agreed by OPEC and other oil producing nations failed to offset broader concerns about slumping global demand.

The greenback drifted higher against its Australian and New Zealand counterparts, widely seen as barometers for market risk, in a sign investors remain concerned about the consumption outlook for commodities.

Financial markets remain on edge over the spread of the novel coronavirus as severe restrictions on personal movement drag the global economy into a deep recession.

“The initial reaction suggests that the decline in oil demand is well ahead of the output cuts that were agreed,” said Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo.

“This is a negative for oil producers. This also encourages risk-off trading, which should support the yen.”

The dollar rose 0.63% against the Norwegian crown to 10.23 and 0.37% to 23.43 Mexican pesos.

Against the Canadian dollar, the U.S. currency held steady at C$1.3945.

Trading could be somewhat subdued as financial markets in Australia, New Zealand, Hong Kong, and Britain are closed for the Easter Monday holiday.

Major oil producers agreed to the output cuts on Sunday to prop up oil markets as the pandemic severely curtailed global demand.

Oil prices had gone into freefall on worries about the virus and a price war between Saudi Arabia and Russia, which was seen straining the budgets of oil producers and hammering the U.S. shale industry.

Currencies from Norway, Mexico, and Canada – all major oil producers – got a boost on Friday as the agreement to cut output began to take shape, but these gains disappeared on Monday as investors avoided risk assets.

While oil futures erased early losses to trade higher, moves in currencies highlighted investor trepidation over the prevailing uncertainty in markets.

Other currency traders pointed to a decline in U.S. stock futures as a supportive factor for risk-off trades.

The cautious mood boosted the yen, which is often sought as a safe-haven during times of market and economic stress because of Japan’s current account surplus.

The yen rose 0.62% to 107.83 per dollar on Monday and jumped more than 0.5% against the Australian and New Zealand currencies.

In the onshore market, the yuan eased slightly to 7.0465 per dollar after officials reported a rise in coronavirus cases on the Chinese mainland. The coronavirus first emerged in China late last year and has dealt the world’s second-largest economy a serious blow.

China will be releasing export data for March on Tuesday, and is set to show shipments continued to contract. Analysts will be closely watching for details on overall trade to gauge the pandemic’s damage on the global economy.

Against the safe-haven Swiss franc, the greenback held steady at 0.9644.

The dollar edged up to $1.0950 per euro.

Further declines in the dollar may be limited with speculative net short positions in the U.S. currency having risen to their highest since May 2018, according to calculations by Reuters and U.S. Commodity Futures Trading Commission data.

The Australian dollar erased early losses to trade at $0.6348. The New Zealand dollar fell 0.16% to $0.6081 as investors shunned risky trades.

The pound rose 0.3% to $1.2509 and last fetched 87.57 pence per euro.

Sterling retained gains made after Prime Minister Boris Johnson left hospital for treatment of COVID-19, the illness caused by the coronavirus.

Dollar falls after Fed bolster lending and coronavirus fears ease

The dollar was on course for a weekly loss on Friday as the U.S. Federal Reserve’s massive new lending program for small companies and signs of a slowdown in coronavirus infections reduced safe-haven demand.

The pound pulled ahead against the dollar and the euro as markets breathed a sigh of relief after British Prime Minister Boris Johnson left intensive care following his hospitalization for COVID-19 symptoms.

Currencies from oil-producing countries also held onto gains against the U.S. currency, but the outlook remains uncertain due to doubts that a deal between OPEC and its allies for a record oil supply cut would be enough to offset the collapse in global fuel demand.

Risk sentiment has steadily improved this week on tentative signs that the pandemic is slowing in U.S. and European hotspots, but some analysts remain cautious given so little is known about the virus and as many nations continue to grapple with the massive economic damage caused by the outbreak.

“The Fed has taken a lot of different measures, but the end result is a large increase in the supply of dollars,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“Positive news about the virus reduces the kind of panicked repatriation into dollars that we saw earlier this year. The end result is gradual dollar weakness.”

Against the euro, the dollar last stood at $1.0941, on course for 1.3% weekly decline.

The dollar traded at 0.9657 Swiss franc, down 1.1% for the week.

Trading was largely subdued in Asian hours as financial markets in Australia, Hong Kong, Singapore, Britain, and the United States are closed for the Good Friday holiday.

The Fed on Thursday announced a $2.3 trillion program to offer loans to local governments and small and mid-sized businesses, the latest step to backstop the U.S. economy as the country battles the coronavirus crisis.

The Fed has also slashed interest rates to zero, restated quantitative easing, and increased dollar liquidity to combat a shortage in money markets, leaving the dollar in the grip of bears in the spot market.

New York, the U.S. state most afflicted by the coronavirus, offered fresh evidence that the arc of the disease caused by the virus was flattening.

The greenback last traded at 108.41 yen, unchanged for the week as concern about an increase in coronavirus infections and the declaration of a state of emergency in Japan offset dollar selling.

The coronavirus first emerged in China late last year and has since spread around the world, infecting more than 1.5 million and claiming more than 90,000 lives.

On the Chinese mainland, the yuan headed for a 0.8% weekly gain against the dollar as China continues to report a decline in new coronavirus cases.

The Australian dollar, which is highly sensitive to risk sentiment because of Australia’s dependence on China and the global commodities trade, jumped by 6% against the greenback this week, highlighting easing stress in global markets.

The pound held steady at $1.2465 on Friday, and headed for a 1.6% gain this week. Against the euro, sterling was on course for its third consecutive weekly gain.

The British prime minister on Sunday became the first world leader to be admitted to hospital for persistent symptoms of COVID-19, the illness caused by the novel coronavirus.

This initially raised concerns about a leadership vacuum, but Johnson’s condition has gradually improved.

The Canadian dollar, the Norwegian crown, and the Russian ruble were all higher against the dollar for the week, but further gains are in doubt.

Mexico has delayed an agreement reached by OPEC+ to cut oil output by 10 million barrels per day that was agreed on Thursday, according to Kuwait’s oil minister.

Investors reacted negatively to early details of a supply-cut agreement between members of OPEC and its allies by selling crude futures, suggesting these cuts may not be enough to offset an expected drop in global demand.

US dollar drifts higher as optimism ebbs on coronavirus crisis

The U.S. dollar edged higher on Wednesday in choppy trading, attracting safe-haven bids, as optimism faded that the coronavirus crisis may be nearing a peak and investor concerns remained over the economic fallout of the pandemic.

The greenback’s firmer tone came after U.S. equities ended lower on Tuesday. Wall Street shares traded higher in morning trading on Wednesday, but not many analysts were betting they would remain so by the end of the day.

“Optimism has eased and it has to. It’s a 50% world. Uncertainty will remain a part of our lives for the next two months,” said Juan Perez, senior currency trader a Tempus Consulting in Washington. “There’s really a fundamental lack of answer to an important question and that is: are we testing enough ? And the answer is no. So you’re not going to get a whole lot of consistency right now,” he added.

The dollar index was flat to slightly higher on the day at 99.993.

The dollar has for a month very closely tracked risk appetite as investors and businesses fearing the worst have rushed to the world’s reserve currency.

Against the yen, the dollar inched higher to 108.79 yen.

The euro was slightly lower on the day at $1.0883, weighed down by the failure of European Union finance ministers to agree on further support for their coronavirus-hit economies. The impasse spooked bond markets and sent shorter-dated Italian yields spiking higher.

The talks, which are trying to agree a package of measures for governments, companies and individuals, were suspended until Thursday. A feud between Italy and the Netherlands over what conditions should be attached to euro zone credit for governments was blocking progress, sources said.

Sterling gained 0.4% against the dollar to $1.2395.

The Aussie, which fell in early European trading after ratings agency S&P cut the outlook for its sovereign AAA rating from stable to negative, clawed back losses and turned positive on the day.

Still, some analysts were already starting to look at the potentially negative longer term implications for the dollar of the extraordinary stimulus measures launched by Washington and the U.S. Federal Reserve to lessen the economic damage caused by the pandemic.

“If you assume that COVID-19 is tackled by the end of the year … in 2021 we have fiscal deficits, balance sheet expansion, and the supply of dollars through other measures – it’s definitely a very strong background for a weaker dollar,” said MUFG’s Derek Halpenny.

Dollar falls, riskier currencies rally on virus lockdown hopes

The dollar lost ground on Tuesday as riskier currencies rebounded on tentative hopes that lockdowns may be slowing the spread of the coronavirus in some countries.

Bets that the world’s biggest crude producers may cut supply to support oil prices also boosted market sentiment.

The greenback – the world’s reserve currency – has swung wildly in recent weeks in volatile trading. But action by central banks to ease a mad scramble for dollars has helped bring some calm to markets.

The dollar was last down 0.6% versus a basket of currencies, mirroring improved risk sentiment across equity markets, with European shares up for a second straight day.

Sterling also rallied, even as traders awaited news on the health condition of British Prime Minister Boris Johnson, who is fighting worsening coronavirus symptoms in intensive care.

Analysts said that while news of Johnson’s condition was clearly a concern, beyond a dip in Asian hours it had not yet moved the pound as it was unlikely to mean a change in the government’s policy direction to fight the virus. Sterling was last up 0.7%.

The dollar was down 0.3% against the yen as Japanese Prime Minister Shinzo Abe declared a state of emergency for parts of the country on Tuesday to counter the spread of coronavirus.

‘Correction from exaggerating selling’

The euro rose 0.7%, last trading at $1.08650.

“We’ve got a nice decline in volatility across forex and equity markets. We know central banks have done a very good job in alleviating the strain in dollar markets and that’s feeding through,” said Kenneth Broux, FX strategist at Societe Generale.

“We need some time for this to settle… I think what we are seeing is a bit of reversion – a correction from exaggerating selling. We are in that process.”

Dollar borrowing costs in swap markets have retreated, with swap rates against the euro and pound falling to their lowest levels in more than a decade this week.

Oil also rose on Tuesday amid hope that oil producers will agree to cut output in the face of crushed demand due to the coronavirus pandemic.

Commodities-exposed currencies including the Norwegian crown, Australian dollar and South African rand rallied particularly strongly, all up more than 1% on the day.

Those currencies were battered last month when investors dumped them for the safety of the U.S. dollar.

The Reserve Bank of Australia kept policy on hold at a meeting overnight after it already slashed interest rates and embarked on quantitative easing.

“With evidence continuing to build that the lockdowns are proving effective at slowing the spread of COVID-19, market participants’ focus is beginning to shift to when and how the lockdowns could be eased,” analysts at MUFG said in a note.

Dollar rises against yen as Japan ready to declare state of emergency

The U.S. dollar stalled against most currencies on Monday but continued its rise versus the Japanese yen as investors digested the fact that the rate of deaths from coronavirus in Europe was slowing while deaths in Japan and elsewhere in Asia accelerated.

With traders getting back some of the “risk on” mood, the yen fell, while the Australian and New Zealand dollars, which tend to benefit from sharper risk appetite, rose.

“The FX implication is yen weakness as Japan’s virus situation worsens and equities bounce,” said Kit Juckes, Societe Generale’s macro strategist.

The greenback rose 0.7% to 109.38 yen, a 10-day high, while the Australian dollar rose 1.3% at 0.6071 per U.S. dollar.

The euro was neutral versus the U.S. currency at 1.0805 . An index which tracks the dollar against six major currencies was also flat at 100.68.

Juckes said the game-changer for the euro “would be a move towards some version of ‘Coronabonds’ at tomorrow’s Eurogroup meeting”.

“Absent that, I’m not sure the euro has much home-grown potential to bounce,” he said.

Euro zone finance ministers are likely to converge on Tuesday on three quick options to support the economy during the coronavirus epidemic.

Italy reported its lowest daily death toll for more than two weeks on Sunday. France also reported a slowing daily death toll, and Germany its fourth straight daily drop in new cases.

But Indonesia on Monday confirmed 218 new infections, the biggest daily jump since the first cases were announced a month ago.

Japan also will declare a state of emergency as early as Tuesday, media reported, as a shortage of beds and a rise in cases linked to hospitals push Tokyo’s medical system to the brink of collapse.

Speculators’ net short U.S. dollar positioning in the latest week touched its highest since May 2018, according to Reuters calculations and U.S. Commodity Futures Trading Commission data released on Friday.

As leveraged funds expect the U.S. currency to weaken, the cost to swap euros into dollars on a three-month basis eased, showing there is “less pressure” on euro, yen and sterling investors to fund dollar requirements, Monex Europe analyst Simon Harvey said.

Dollar borrowing rates via the 3-month euro-dollar FX swap fell to a 12-year low of minus 65 basis points, indicating that European borrowers are able to borrow the greenback at a discount.

This rate had swung to a 2011 European crisis-era high of more than 150 bps two weeks earlier.

“But the funding strain is still there,” Harvey said.

Elsewhere, the euro was up 0.1% versus the Swiss franc at 1.0569.

The amount of cash that domestic commercial banks hold with the Swiss National Bank (SNB) rose last week, data showed on Monday.

The pound was up 0.2% at $1.2292 and up 0.3% against the euro at 87.89 pence, having slipped overnight on reports that Prime Minister Boris Johnson had been hospitalized with persistent COVID-19 symptoms.

Dollar firm overall, but oil price jump boosts commodity currencies

The dollar gave up some of its recent gains on Thursday after a 10% jump in oil prices boosted commodity-linked currencies, though uncertainties over the coronavirus pandemic kept the safe-haven greenback strong against other major currencies.

Oil prices leapt on hopes that U.S. diplomacy would succeed in persuading top exporters Saudi Arabia and Russia to end a price war that has driven the crude oil market to its lowest levels in almost two decades, and on a Bloomberg report on China’s oil purchases.

That lifted commodity-linked currencies, with the Australian dollar gaining 0.6% to $0.6110, and the Canadian dollar firming 0.65% to C$1.4146.

But against most major currencies, the U.S. dollar held firm, as investors unnerved by the massive disruption to global trade caused by the pandemic took comfort from holding cash dollars.

The dollar index against a basket of six major currencies stood flat at 99.470 after a gain of 0.53% overnight as the U.S. currency advanced against most of its major peers.

The euro dipped 0.1% to $1.0947 after a 0.69% fall on Wednesday.

The safe-haven yen, meantime, eased slightly, trading at 107.24 yen per dollar after hitting a two-week high of 106.925 on Wednesday.

Markets were spooked after U.S. President Donald Trump’s warning late Tuesday that Americans faced a “painful” two weeks ahead in fighting the coronavirus.

“If America’s optimistic president is warning the worst of the pandemic is yet to come, what factory in their right mind would keep the doors open and workers on the payroll?” asked Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

“With only a few actual data points so far, the results indicate this is looking more like a depression than a garden-variety recession.”

The starkest evidence of the damage came last week when weekly U.S. initial jobless claims, one of the earliest gauges of economic trends, jumped to 3.28 million, blowing past the previous record of 695,000 set in 1982.

The next jobless claims data, due at 1230 GMT, is expected to show another 3.50 million applications last week.

Economists’ forecast in a Reuters poll range from 1.5 million to 5.25 million.

“As we’ve seen yesterday, a deterioration in the U.S. economic outlook is likely to lead to strength in the yen against the U.S. dollar,” said Shin-ichiro Kadota, senior strategist at Barclays.

Dollar rallies as investors brace for global downturn

The dollar gained broadly against riskier currencies on Wednesday, with markets staring at what is likely to be one of the worst economic contractions for decades as the world locks down to fight the coronavirus pandemic.

The greenback advanced against the Australian and New Zealand dollars, sterling, and most emerging market currencies as fresh selling in global shares highlighted growing risks from the pandemic that has shown little sign of abating.

The Australian dollar dropped 0.35% to $0.6115 and the New Zealand dollar fell 0.3% to $0.5945 while the British pound shed 0.4% to $1.2376.

Emerging market currencies were hit harder, with the Mexican peso falling more than 1% to 23.960 to the dollar, while the South African rand gave up 0.7% to 17.952 per dollar. Most Asian currencies also dropped.

While the dollar’s status as the world’s reserve currency makes it a natural safe haven, investors also flocked to the safe-haven yen, which gained 0.2% against the dollar to 107.33 per dollar.

The euro eased 0.2% to $1.1015 but gained against most other currencies as its vast liquidity is attractive at times of economic stress.

“In my view, markets have still not fully priced in the damage from the coronavirus, with some people still talking about V-shaped recovery,” said Masahiko Loo, portfolio manager at Alliance Bernstein in Tokyo.

“The U.S. and Europe are hit by the first wave now, but as you can see in Asia, there could be more waves from re-imported cases. Human psychology also does not quickly recover either after an experience like this.”

The dollar held beneath overnight highs against most majors and was well below multi-year peaks made last month, before the Fed pumped more dollars into the system to calm markets.

The Fed on Tuesday broadened the ability of dozens of foreign central banks to access dollars during the coronavirus crisis by allowing them to exchange their holdings of U.S. Treasury securities for overnight dollar loans.

“The whole experience is testing the maxim in the market of ‘don’t fight the Fed,’” said Kyle Rodda, analyst at broker IG Markets in Melbourne.

“The Fed clearly wants to do everything it can necessary to ensure dollar liquidity, which puts downward pressure on the dollar,” he said. “But by the same token there is still this very structural push to buy dollars right now because liquidity is coming at an absolute premium with so much risk in the market.”

Against a basket of currencies the dollar gained 0.3% to 99.290.

Sharp contraction

Manufacturing data in Asia painted a bleak picture. Factory activity in Japan and South Korea posted the biggest contractions in about a decade.

The Bank of Japan’s “tankan” corporate survey showed Japanese manufacturers turned pessimistic for the first time in seven years.

Surveys due later on Wednesday from countries including Germany and the United States are expected to do similarly little for investor confidence, while U.S. private employment data is likely to show a drop in payrolls.

The virus has now killed more than 42,000 people and infected more than 851,000 in 205 countries.

Goldman Sachs on Tuesday said it now forecasts a real GDP sequential decline of 34% in the United States this quarter, on an annualised basis, compared with an earlier estimate of a 24% drop.

“In the absence of either a material improvement in global risk sentiment, or commodity prices, then together with ongoing dollar strength, we are not convinced the Australian dollar can easily maintain its foothold back above $0.60,” National Australia Bank analysts said in a note.