FX & market recap:
A shift in the risk sentiment tone that began Wednesday sparked a commodity currency bloc rally. AUD is poised to record the largest G-10 FX gains since Monday’s NY open, followed by CAD. News that lockdown restrictions are being phased out in cities around the world and reports that China and the US are working closely to fulfill Phase 1 Trade deal obligations, fueled the move.
A cynic would suggest the move is merely bad-news fatigue, as global economic normalization still has an exceptionally long way to go. The WSJ reports that China Vice Premier Liu He, US Trade Representative Robert Lighthizer, and Treasury Secretary Steven Mnuchin “pledged to enhance economic and public-health cooperation and moved to create a favorable environment to implement January’s trade deal.”
The US dollar was also undermined as Fed Funds futures predicted negative US interest rates, beginning in December 2020, and continuing to January 2022.
Canadian dollar highlights:
USD/CAD dropped on the back of broad US dollar selling and tested the February uptrend line at 1.3920, which held. Today’s Labour Force survey is expected to show that unemployment in Canada is far worse than that of the US, which suggests further USD/CAD losses will be limited.
EUR/USD traded sideways in a narrow range with a modestly bullish bias. Traders are awaiting this mornings US employment report. However, gains may be limited due to concerns around Germany and the European Union over the ECB’s quantitative easing measures. The ECB is likely to ignore the German court ruling as the President does not have much “Lagarde” for German law.
British pound highlights:
GBP/USD fully recovered its losses after the Bank of England policy meeting, and it traded in a narrow range. The UK is closed today, after changing their usual May Bank holiday from the 4th to the 8th, to coincide with the 75th anniversary of VE Day.
Asia Pacific highlights:
USD/JPY is adrift in a 106.23-106.45 range. Japan’s Finance Minister hinted at new stimulus measures, saying he would respond appropriately to the governments wishes. Falling US Treasury yields limited topside gains. AUD/USD and NZD/USD consolidated gains near the top of their recent ranges and are awaiting further direction from today’s US employment report.