Forex Signals | Dollar Retreats Over Increased Hopes of Global Economic Recovery
FxPremiere.com — The U.S. dollar was down on Wednesday morning in Asia after increasing optimism over a global economic recovery from COVID-19 increased investor risk appetite.
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Investors focused on countries continuing to loosen lockdown measures and restarting their economies, despite the ever-growing number of COVID-19 cases and no cure.
There are almost 6.4 million global cases of the virus as of June 3, according to Johns Hopkins University.
The U.S. Dollar Index that tracks the greenback against a basket of other currencies fell 0.24% to 97.427 by 11:49 PM ET (4:49 AM GMT) as investors retreated from the safe-haven asset.
“The U.S. dollar is generally weak… The economy recovery story is the main factor.” Yukio Ishizuki, FX strategist at Daiwa Securities in Tokyo, told Reuters.
The USD/JPY pair was down 0.05% to 108.61. The yen is also considered a safe-haven asset.
The USD/CNY pair rose 0.16% to 7.1107. China’s Caixin/Markit services Purchasing Managers’ Index (PMI) reading for May was 55, indicating a return to growth for the country’s services sector for the first time since January.
The AUD/USD pair gained 0.66% to 0.6939 even after the Bureau of Statistics said that Australia’s GDP fell 0.3% during the first quarter of 2020.
Daiwa Securities’ Ishizuki remained optimistic about the AUD, saying that “The Australian dollar has a lot of room to run because there are still a lot of shorts that need to be covered.”
The NZD/USD pair rose 0.71% to 0.6413 and the GBP/USD pair gained 0.31% to 1.2588.
The dollar has sold off in early European trade Wednesday, with riskier assets in demand as investors look for more fiscal stimulus amid signs of a global economic recovery.
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 97.362, down 0.3%, falling to levels last seen in the middle of March. USD/JPY was largely flat at 108.67.
EUR/USD traded 0.5% higher at 1.1220, trading above 1.12 for the first time since mid March, on hopes policymakers will continue to support the euro zone, despite the German government’s failure to agree on a second big stimulus package Tuesday. The region’s weakest economies are still struggling to recover from the measures used to combat the coronavirus outbreak, although the gradual reopening of the European economy continued Wednesday as Italy lifted its quarantine regulations for visitors.
The European Central Bank is expected to increase its 750 billion euro ($840 billion) Pandemic Emergency Purchase Program, on Thursday, probably by around 500 billion euros.
Sterling has also posted gains against the U.S. dollar, up 0.5% at 1.2606, above 1.26 for the first time since mid April, in sympathy with a rally in global equity prices amidst steadily improving investor sentiment regarding the global exit from lockdown.
That said, the U.K. and EU still appear far from a solution to avoid a big disruption to trade after the post-Brexit transition period ends at the end of the year. The two sides started their last scheduled talks on the issue this week, and doubts remain about the likelihood of progress.
Earlier Wednesday, data showed that China’s services sector returned to growth last month for the first time since January.
USD/CNY traded 0.1% higher at 7.1089, but still off the 7.17 levels seen at the end of last week as the tensions between the U.S. and China were at their peak.
Additionally, the Australian dollar, often seen as a proxy bet on the strength of the Chinese economy, rose 0.6% to fetch $0.6938, hitting a five-month high against the greenback, despite the country’s GDP falling 0.3% during the first quarter of 2020, a second straight quarterly contraction.
Pound Sterling Australian Dollar (GBP/AUD) Exchange Rate Muted on Aussie Recession Woes
The Pound Sterling Australian Dollar (GBP/AUD) exchange rate remained largely flat this morning. This left the pairing trading at around AU$1.8177.
The Australian Dollar rallied this morning as risk appetite continued to improve. This allowed the Australian currency to rally to a five-month high against the US Dollar (USD) today.
Hopes for further government stimulus and a global economic recovery sent traders flocking away from safer bets.
According to FX strategist at Daiwa Securities, Yukio Ishizuki:
‘The US Dollar is generally weak. The Australian Dollar has a lot of room to run because there are still a lot of shorts that need to be covered. The economy recovery story is the main factor.’
Meanwhile, ‘Aussie’ gains were likely limited after GDP data showed growth in the economy contracted in the first quarter as expected.
Australia’s treasurer stated the country was already in recession, as GDP slumped -0.3% in Q1. This left GBP/AUD flat.
Speaking to reporters in Canberra, Treasurer Josh Frydenberg said:
‘Based on what we know from Treasury, we’re going to see a contraction in the June quarter, which is going to be a lot more substantial than what we have seen in the March quarter.’
Added to this, annual growth increased to just 1.4%, the slowest since the 2009 global financial crisis. The country’s economy was battered by the worst bushfire season in living memory, the coronavirus pandemic and a prolonged drought.
However, sentiment amongst investors continued to improve as lockdown restrictions continued to be eased and commodity prices rose.
Sterling (GBP) Flat as UK PMI Reveals ‘Deeply Concerning Picture’
The Pound remained flat against the Australian Dollar on Wednesday morning after PMI data revealed the severe downturn in the country’s services sector continued in May.
Although, the pace of decline slowed since April’s rapid downturn due to the coronavirus pandemic.
The latest PMI reading rose from April’s 13.4 to 29 in May, which likely offered GBP some support.
Although, Markit revealed over half surveyed reported a decrease in business activity, while just 13% reported an increase.
Commenting on this, Group Director at the Chartered Institute of Procurement and Supply, Duncan Brock noted:
‘May’s survey data painted a deeply concerning picture of a lockdown slowdown across the service sector as employment dropped at the second fastest rate on record, pipelines of new work were woefully empty and business confidence continued to suffer.
‘As restrictions are eased, there is still extreme uncertainty about how the pandemic will pan out. Continued anxiety about the coronavirus means consumer spending may not be the wind beneath the sails of any immediate return to pre-virus economic activity.’
Pound Australian Dollar Outlook: Retail Sales and Brexit Talks in Focus
Looking ahead, the Australian Dollar (AUD) could give up some of today’s gains against the Pound (GBP) following the release of dire retail sales data.
If Australian sales plummet in April due to the coronavirus pandemic, it will weigh on the ‘Aussie’.
Meanwhile, the main focus for Sterling traders is likely to be the ongoing post-Brexit negotiations between the UK and European Union.
If talks show progress on key issues that previously left negotiations at a standstill, the Pound Australian Dollar (GBP/AUD) exchange rate will edge higher.
(Bloomberg) — Australia’s economy contracted in the first three months of the year, setting up an end to the nearly 29-year run without a recession as an even deeper slowdown looms for the current quarter.
Gross domestic product fell 0.3% from the final three months of 2019, the first quarterly drop since 2011, compared with a forecast 0.4% decline, statistics bureau data showed in Sydney Wednesday. From a year earlier, it expanded 1.4%, matching estimate
The result sets up an end to Australia’s record run of avoiding two consecutive quarters of negative GDP, having dodged recessions during the 1997 Asian Financial Crisis, the Dot Com Bubble and the 2008 global financial crisis. The current quarter will see a deep contraction, with almost 600,000 jobs lost in April alone and much of the economy in lockdown to contain the coronavirus.
Fiscal and monetary policy are working in tandem to rebuild the economy. The Reserve Bank of Australia has taken the cash rate near zero and lowering the cost of borrowing with its 0.25% bond yield target. The government has injected tens of billions of dollars into the economy to help tide businesses and households through the lockdown.
With the containment of the health crisis allowing activity to resume, how quickly businesses can get back on their feet, workers regain employment and households resume spending is the critical question.
“The rate of new infections has declined significantly and some restrictions have been eased earlier than was previously thought likely,” RBA Governor Philip Lowe said Tuesday after keeping borrowing costs unchanged.
“However, the outlook, including the nature and speed of the expected recovery, remains highly uncertain and the pandemic is likely to have long-lasting effects on the economy,” he said. “In the period immediately ahead, much will depend on the confidence that people and businesses have about the health situation and their own finances.”
BRASILIA (Reuters) — Brazil’s real extended its rally in dramatic fashion on Tuesday, taking advantage of improving global market sentiment and demand for riskier assets to chalk up its biggest rise against the dollar in two years.
The real was one of the worst-performing currencies in the world this year as markets tanked and the global economic and public health crises deepened, sinking to a record low near 6.00 per dollar. But it has roared back in recent weeks.
It rallied more than 3% on Tuesday, its biggest one-day gain since June, 2018, to trade at a seven-week high of 5.20 per dollar (BRBY). As traders rotate out of dollar-denominated assets, a test of 5.00 per dollar is now on traders’ radar.
“I wouldn’t discard it,” said the head of trading at a bank in Sao Paulo, noting huge global monetary and fiscal stimulus, encouraging signs from countries reopening their economies, and surging stock markets.
“However, I am surprised to see how quickly things have happened,” he said, also noting that central bank intervention has helped ease the pressure on the real lately.
The seal has been closely correlated with Brazilian interest rates recently, generally depreciating when the rates curve steepens and appreciating when it flattens.
The currency’s move in the last 10 days has been stronger than the move in interest rates, suggesting any investor cautiousness or bearishness toward Brazil is being expressed in rates, not the currency.
Traders note that political risk surrounding President Jair Bolsonaro persists, the COVID-19 crisis is far from over and fallout from the looming recession has yet to be felt.
Analysts at Deutsche Bank (DE:DBKGn) reckon record low interest rates, no economic growth and “rising political noise” will see the dollar rise above 6.00 reais in the coming weeks.
But for now, at least, real skeptics have been pushed to the sidelines.
The pound eased from one-month highs against the dollar on Tuesday, after failing to break a key technical trading level after the U.K. dismissed reports that Prime Minister Boris Johnson was ready to compromise on key sticking points that have stifled progress in post-Brexit talks.
GBP/USD rose 0.34% to $1.2541, but had jumped as high as $1.2575, testing its 100-day moving average, a key technical level at around $1.2573.
The U.K. has expressed a desire to take control over access to its waters and fish when the transition period ends, rather stick with the EU’s Common Fisheries Policy, which set fishing quotas among EU member states.
The Prime Minister’s official spokesman reportedly said that reports suggesting the U.K. is ready to compromise on fisheries and level playing field rules was “wishful thinking by the EU.”
“We have always been clear there is no question of splitting the difference on level playing field and fish,” he added.
The remarks added to growing concerns over a lack of progress on negotiations so far, ahead of the fourth round of post-Brexit talks, which get underway today before both sides take a break to assess progress.
With the clock running down on the end of June deadline for U.K. to request an extension on trade talks of up to two years, many have warned the path ahead for sterling will likely be fraught with challenges amid a weaker economic backdrop.
Data on Tuesday showed a sharp fall in U.K. mortgage approvals in April, and house prices suffering the steepest monthly decline in 11 years.
“There are significant headwinds to demand in prospect — higher unemployment, falling wages and significant economic uncertainty,” HSBC said.
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Originally published at https://www.linkedin.com.
