FX Rate News

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.

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.

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.

‘Correction from exaggerating selling’

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.

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.

Sharp contraction

The dollar traded marginally higher Tuesday, helped by gains against the more defensive currencies, the Japanese yen and the Swiss franc, on the last trading day of the month.

At 3:05 AM ET (0705 GMT), the U.S. Dollar Index, which tracks the greenback against a basket of six other currencies, stood at 99.597, up 0.3%.

USD/JPY gained 0.6% to 108.50, USD/CHF rose 0.5% to 0.9629, while EUR/USD fell 0.4% to 1.1005.

“The talk is Japanese names are short of dollars (as the fiscal year comes to an end), which is likely to keep the dollar bid well into London time,” Yukio Ishizuki, FX strategist at Daiwa Securities, told CNBC.

That said, the yen and the Swiss franc are often seen as safe havens during troubled times, and the better-than-expected China manufacturing PMI data will have given traders hope that some economic stabilisation may be possible going forward.

Global risk stabilisation near term supports EUR/USD at 1.10-1.12 for now, said analysts at Danske Bank, in a research note.

“Looking further ahead, a range of factors (EU institutional weakness, doubt as to Fed’s reaction function 12M out and virus fears) also still make downside risks more pertinent, such that 1.07 will likely act as an anchor, the bank added.

Additionally, GBP/USD dropped 1% to 1.2292, as the Fitch downgrading of U.K.’s sovereign debt rating on Friday continued to takr its toll on sterling.

Elsewhere, the forint is lower, with EUR/HUF up 0.2% at 359.13, having hit a new all-time high on Tuesday after the Hungarian Parliament voted Monday to give Prime Minister Viktor Orban the right to rule by decree during the coronavirus emergency – with no time limit. The measures establish a dictatorship in all but name in the heart of the EU, which has long prided itself on its role in fostering democracy in Europe.

This move “does have the potential to amplify the already ongoing disagreements between Hungary and the EU,” said Danske Bank, in a research note.

“As such, these somewhat right-wing initiatives did lend support to EUR/HUF yesterday and more HUF weakness could come at a later point in time as a result,” the bank added.

The pound has rallied against the dollar after Theresa May won a crucial vote of confidence in her leadership, thwarting plans by Tory Brexiteers to remove her as prime minister.

It jumped to $1.2672 as it emerged that enough Conservative MPs had supported their leader to see off a leadership challenge on Wednesday evening, before falling to $1.2605, still 1 per cent up on the day.

It had slumped to $1.2562 when markets closed on Monday, its lowest level since April 2017, after Ms May announced a parliamentary vote on her Brexit deal would be delayed.

However, the pound remains low against the dollar compared to recent months, when anything between $1.30 to $1.27 has been normal.

The pound also closed on Wednesday against the euro at €1.1110, up from €1.1059 at the beginning of the week, but low compared to the roughly €1.15 seen during November.

Ms May won the confidence vote by 200 votes to 117 – with just under two thirds of Tory MPs deciding to back her leadership.

The secret ballot had been called earlier on Wednesday after Sir Graham Brady, the chairman of the 1922 Committee of Conservative backbenchers, announced he had received the 48 letters from MPs needed to trigger a vote.

The dollar was on track for its biggest weekly decline in more than a decade on Friday, as trillions of dollars worth of stimulus efforts by governments and central banks helped temper a rout in global markets triggered by the coronavirus pandemic.

The dollar had been riding high in March amid a drive for dollars by investors trying to get their hands on the world’s most liquid currency, and one considered a safe haven.

But big government spending pledges, including a $2.2 trillion U.S. package, and co-ordinated efforts by central banks around the world to increase the supply of dollars have supported a rally in other major currencies.

An unprecedented jump in U.S. jobless claims on Thursday underscored the coronavirus’s impact on the country’s economy, further weakening the dollar.

The dollar consolidated losses on Friday, edging up 0.2% on the day against major currencies, but was still on course for a near 3% fall for the week – its biggest decline since May 2009.

The swing underscores the currency market’s volatility after the dollar index last week racked up its biggest weekly gain since the financial crisis.

“The sharp reversal of the US dollar yesterday was clear evidence that the deluge of measures from the Federal Reserve to address dollar liquidity problems were finally becoming more successful,” said analysts at MUFG in a note.

“While we believe the ultimate direction of the dollar following this crisis will be down, we can’t be complacent in assuming this is now under way. That would be premature … We need to wait and see before a trend of USD weakness becomes established.”

Against the yen, the dollar fell 0.7% on Friday to 108.855 yen, as Japanese investors and companies repatriated funds before their fiscal year ends next week.

The euro ticked down 0.2% to $1.10080 but was still on track for an almost 3% gain over the dollar this week.

The dollar barely moved versus sterling and the Australian dollar as they consolidated the week’s gains.

But the dollar was up more than 1% against the export-exposed Norwegian crown and South African rand.

The dollar funding squeeze in the interbank market has abated considerably this week. Currency basis swap spreads, the premium investors need to pay over interbank rates to fund dollars through foreign currency swaps, fell considerably.

“Now that the surge in demand for dollars overseas has been met by the Fed’s new improved swap lines, economic and medical fundamentals are taking over,” said analysts at BDSwiss in a note.