There has been a broadly positive sentiment that has taken hold at the beginning of another trading week. There has been nothing outright to drive this bias, but it comes as countries in Europe that have been the most significantly hit by COVID-19 have begun to ease their lockdown restrictions. Spain and Italy have always been at the top of many of the graphs but with daily death tolls falling consistently now, lockdowns are being phase lifted. There are also reports in the press that the lockdown could also be lifted in the UK before 7th May, with UK Prime Minister Johnson returning to full time duties after his own bout of COVID-19 illness.
So, in financial markets we see the traditional positive risk bias moves taking hold. US Treasury yields are ticking higher, whilst the US dollar (which has become a key safe haven) is underperforming. The Aussie and Kiwi are key outperformers, whilst equities are looking solidly higher and gold is struggling. The only real blot on the copybook today is that oil has once more lurched lower. There is not much on the economic calendar today, so it would be down to newsflow and momentum as to whether this early positivity can be sustained.
Wall Street closed solidly higher on Friday with the S&P 500 +1.4% at 2836. US futures are also looking in decent shape early today, with the E-mini S&Ps up +0.5%. This has set the stage for a good session in Asia, with the Nikkei +2.7% and Shanghai Composite +0.3%. European markets look well set too, with FTSE futures +1.2% and DAX futures +2.0%.
In forex, the underperformance of USD stretched across the major forex spectrum, with even JPY doing well. Whilst the commodity currencies as performing well, there is a slight sag on CAD amid renewed downside on oil.
In commodities, we see weakness, with gold -0.8% (down -$14) whilst silver is similarly lower. The key move lower is with yet more volatility and renewed selling on oil, with Brent Crude -5% and WTI -14%.
There is little of note on the economic calendar for today.
AUD/USD and NZD/USD
The wildcard this week will be decisions from the Australian and New Zealand governments regarding the easing of COVID-19 restrictions and the reopening of their respective economies.
The Australian and New Zealand Dollars finished mixed last week with the Aussie settling just under its two week high and with enough strength to perhaps break out to the upside. The currency was helped by better than expected Retail Sales data and a recovery in crude oil prices after a weak start to the week had both the Aussie and Kiwi under pressure.
For the week, the AUD/USD settled at .6396, up 0.0033 or +0.52% and the NZD/USD finished at .6019, down 0.0015 or -0.25%.
Plunge in Crude Oil Weighs on Commodity Currencies
Early last week, U.S. crude oil traded at negative prices for the first time in history, with demand for energy collapsing amid the coronavirus pandemic.
The benchmark price for U.S. crude plummeted to negative $35.63 a barrel as traders sought to avoid owning crude with nowhere to store it. Additionally, demand for oil has collapsed so much that facilities for storing crude are nearly full.
The steep drop in crude oil took down commodity-linked currencies all around the world.
Reserve Bank of Australia Monetary Policy Minutes
The minutes from the RBA’s monthly meeting on April 7 showed board members agreed income support measures such as the federal government’s JobKeeper program would help cushion the COVID-19 blow for households, although business conditions and investment was deteriorating.
The RBA opted not to change the rate after two coronavirus-inspired cuts in March reduced the figure to a record low 0.25 percent – where it is expected to remain for some time.
The bank also reaffirmed a 25 basis-point yield target on three-year Australian government bonds after it introduced quantitative easing measures at a March 18 emergency meeting.
RBA’s Dr. Lowe: Moving Too Fast May Worsen Virus Toll
RBA Governor Philip Lowe said easing COVID-19 restrictions will undoubtedly help the economy though moving too quickly could entrench an already disastrous decay in jobs, wages, inflation, and growth.
RBA policymakers said the economy could start to bounce back in the September quarter as government begins to ease coronavirus restrictions towards the middle of the year. However, if the restrictions stay in play longer, or they have to be reimposed due to an unexpected increase in coronavirus cases, the recovery will be delayed and interrupted. “In that case, the loss of incomes and jobs would be even more pronounced,” Dr. Lowe said in a speech in Sydney on Tuesday.
New Zealand Dollar Pressured by Central Bank Activity
The New Zealand Dollar was pressured last week on concerns the Reserve Bank of New Zealand (RBNZ) may start buying bonds directly from the government and on the outlook for dairy prices.
Reserve Bank governor Adrian Orr had been talking about buying bonds directly from the government, rather than through the secondary market, as a money printing mechanism, “which is not the way central banks usually do it,” said Pat Gilligan, a director at Forex.
Traders are now looking for more QE from the RBNZ, which could come in more than twice a percentage of GDP in government bonds. This news is NZ dollar negative. Also weighing on prices was a negative outlook for dairy prices after a poor Global Dairy Trade auction.
Firmer oil prices this week could help underpin the commodity-linked Aussie and Kiwi, but traders should be cautious about relying on that market as a bullish price driver due to its volatility and instability.
Aussie traders are going to monitor the quarterly Consumer Inflation numbers that are expected to come in at 0.2%, down significantly from the previous 0.7% reading. Trimmed Mean CPI is also expected to dip to 0.3% from 0.4%.
China’s Manufacturing PMI data on Thursday could also be a market moving event. The wildcard this week will be decisions from the Australian and New Zealand governments regarding the easing of COVID-19 restrictions and the reopening of their respective economies.