30-Mar-2020

1) Aussie Dollar Breaks Through 61 US Cents
2) Gold Declines in Asia As Dollar Catches Bid
3) GBP/USD: Off Two-Week High, Below 1.2400, Amid Coronavirus Crisis

1) Aussie Dollar Breaks Through 61 US Cents

The Australian dollar rose through 0.61 US cents through trade on Friday, buoyed by a continued run in improved risk sentiment. The Australian dollar closed the week higher against the greenback, up nearly 1.37% for the day reaching a high of 0.6199, its highest level in the last 10 days. The Aussie regaining nearly 300 bps from its weekly low to retake the 0.61 handle on the back of broad-based selling pressure surrounding the USD which seems to have provided a boost to the Australian currency. Last week we saw a sharp jump in US jobless insurance claims which has added potency to an already sizeable drop in the US dollar since the Federal Reserve introduced new measures that were essentially intended to curb its strength. Locally talk of a third stimulus package in Australia that will support businesses that lose all their customers and would otherwise shutdown during lockdown has helped keep the Aussie strong after a good week. In the continued fight against the Coronavirus (Covid19) on Sunday night Australian Prime Minister Scott Morrison told all Australian not to go out in public with more than one other person while all public spaces including parks, playgrounds, skateparks and outside gyms will be closed from midday tomorrow.

Looking ahead this week in Australia and all eyes will be on Wednesday’s Reserve Banks Monetary Policy Meeting Minutes and Building approvals. Followed by Friday’s release of both AIG Construction Index and Final Retail Sales for the month of February. On the data front in the US this week we will start on Monday with Pending Home Sales for the month of February. On Tuesday we will see the release of US Consumer Confidence. Finally on Friday all eyes will be on the US Unemployment Rate decision. From a technical perspective, the AUD/USD pair is currently trading at 0.6147. We continue to expect support to hold on moves approaching 0.6125 while now any upward push will likely meet resistance around 0.6200.

Last week the Greenback posted its biggest weekly decline against a basket of currencies as trillions of dollars’ worth of stimulus efforts by governments and central banks helped temper a rout in global markets driven by the coronavirus (Covid19) pandemic. The U.S. House of Representatives on Friday approved a $2.2 trillion aid package, the largest in American history, to help people and businesses cope with the economic downturn inflicted by the coronavirus (Covid19) outbreak. The United States now has 85,594 people counted as infected, up from 68,211 on Friday. Unemployment claims jumped to a record 3.3 million last week, from 281,000 the previous week and easily ahead of the previous record of 695,000 set in October 1982, only served to fuel market expectations that the Federal Reserve would pump more money into the economy. US Equities were also down 3.5% on Friday ending a three-day rebound for US equities, the first such streak of gains since mid-February.

2) Gold Declines in Asia As Dollar Catches Bid

Gold is entrenched in the negative territory in Asia as the US dollar, the shiny metal’s biggest nemesis, is benefitting from the renewed risk aversion in the equity markets.

The yellow metal turned lower from $1,638 in early Asia and is hovering at session lows near $1,614 per ounce at press time, representing a 0.75% decline on the day.

Meanwhile, the futures tied to the S&P 500 are down 0.75% and stocks in Asia are also flashing red. The equities have come under pressure as the coronavirus outbreak gathered pace in the US over the weekend. Stocks put on a good show last week, possibly on the back of the fiscal and monetary stimulus lifelines provided by the US and other nations across the globe.

While the renewed risk-off tone is boding well for the traditional safe-haven currencies like the Japanese yen, gold is struggling, possibly due to the strength in the greenback. The dollar index, which tracks the value of the greenback against majors, is currently seen at 98.73, up 0.42% on the day.

The American dollar is again pushing higher against risk currencies amid anti-risk action in the equity markets and could continue to gain altitude in the near-term, according to Goldman Sachs.

In the West, the economic fallout from the virus outbreak has just begun and a decline in the equities looks inevitable, said Goldman Sachs analysts.

It’s worth noting that China cut reverse repo rates by 20 basis points early Monday and infused $7 billion liquidity into the banking system. That too has so far failed to put a bid under gold and risky assets.

3) GBP/USD: Off Two-Week High, Below 1.2400, Amid Coronavirus Crisis

With the dire warnings on the UK’s economic growth crossing wires amid expectations of a longer lock down, GBP/USD drops to 1.2375, down 0.60%, ahead of the London open on Monday. The surge in the virus figures and inclusion of the PM Boris Johnson recently weighed on the pair.

The Guardian relies on the Center for Economics and Business Research (CEBR) report while conveying that the UK’s economic output can plunge by an unprecedented 15% in the second quarter of the year. The news also cites an increase in the death toll to 1,228 and 19,522 as positive cases including the national leader. Earlier, the global rating agency Fitch downgraded the UK’s credit rating from AA to AAA- with negative outlook.

Elsewhere, the UK Telegraph came out with the news that the intensive care for coronavirus patients now limited to those ‘reasonably certain’ to survive, as per the sources from the National Health Services (NHS) London Trust.

Furthermore, The Guardian cites the risk for the EU citizens who have made their homes in the UK to be illegal as the government diverts resources to fight coronavirus. Additionally, Dr. Jenny Harries, deputy chief medical officer for England, said during her daily press conference on Sunday that the current restrictions in the UK could last for six months.

On the contrary, US President Donald Trump anticipates the virus numbers to peak in the next two weeks while avoiding lock downs in New York, New Jersey and Connecticut.

Amid all this, the market’s risk-tone remains heavy with the US 10-year treasury yields declining below 0.70% and most Asian stocks are marking losses by the press time.

While the US Dallas Fed Manufacturing and Pending Home Sales are the only ones to decorate the economic calendar, virus headlines will be the key driver to follow.