Daily Market Pulse

USD higher as oil prices plunge


The USD begins the week higher as concerns over the drop in oil prices have traders once again looking at the safety of the greenback. DOW Futures are pointing towards a lower opening of around 150 points after rising over 2% last week for a second consecutive weekly gain. Adding to the positive dollar, both New York and New Jersey governors indicated the virus outbreaks may be past the plateau as we begin the week. In Washington, Treasury Secretary Mnuchin said that lawmakers were close to agreeing on a deal for the second round of loans for small businesses. While traders seem to become more optimistic, there is still a long way to go. Economic numbers will be closely watched this week with a continued focus on Thursday’s release of US jobless claims. US Treasury yields followed oil prices lower as well, with the 10-year note lower at 0.6384% and the 30-year bond lower at 1.2635%. Traders will be focusing this week on “economic restarts” around the world and also whether the spread of the virus is slowing. Traders' preference for a safe-haven will keep the USD better bid.


EUR/USD trading lower this morning as European leaders continue to argue the merits of “coronabonds”. There is another round of negotiations by EU leaders set to occur on Thursday via teleconference, but comments from both sides of the debate are affecting the single currency this morning. There is plenty of political comments being made as Spain has suggested expanding the initial EUR500 billion package to EUR 1.5 trillion, while French President Macron and Spanish PM Sanchez have issued warnings about the future of the EU. Germany and the Netherlands continue to reject the idea of sharing debt. This looks like a debate that does not have a quick resolution. Virus outbreaks are on the decline in Europe while Germany and France are looking at easing some restrictions this week. Economic releases scheduled for later this week will show a worsening EU economy and this will weigh on the EUR.


GBP/USD is also trading lower his morning as criticism over the way Great Britain has handled the viral outbreak continues. PM Boris Johnson is said to be weighing the possibility of lifting the lockdown but has not made any statements as of yet. On Sunday, the Times reported that during the early stages of the outbreak, PM Johnson missed five meetings regarding the outbreak adding to the slow response of the government. While the disease has claimed over 16,000 lives in the UK, there has been a decline in cases recently. The lockdown in the UK is now set until early May and there does not seem to be an exit strategy in place at this point. Brexit negotiations have resumed via teleconference and these talks should become more intensive this week. The concerns regarding the economy, the virus and the reopening of Great Britain are expected to weigh on the pound as we move forward this week.


USD/JPY is trading in the middle of its overnight range this morning, as traders digest economic releases from Japan. In non-seasonally adjusted terms, Japan’s exports dropped -11.7% year-on-year in March, and imports fell -5.0%. The contraction in exports was the worst release since July of 2016. Due to the coronavirus, shipments to China, the US, and the EU were way down. Economists expect these numbers to continue in April as the global lockdown continues. Reuters has reported that the Japanese government will add to its economic rescue package. There will be a JPY 100K cash payout for every citizen. The government plans to issue bonds worth JPY 25.7T to fund this endeavor.


USD/CAD is higher this morning as oil prices fell in early Monday trading as demand continues to be affected by the coronavirus pandemic. West Texas Intermediate crude fell to $13.39 per barrel, while Brent crude as lower at $27.17 per barrel. Adding to the loonie’s woes will be economic releases due this week, especially March CPI, due on Wednesday. Due to a sharp fall in gasoline prices, CPI is expected to be down 0.4%. Annual inflation is also expected to fall from 2.2% to 1.1%. The Canadian economy was pointing lower before the viral outbreak and this downtrend looks to continue.


According to economists, the Chinese economy is expected to expand only by 1.8% in 2020. The first-quarter contraction of GDP at -6.8% was the first GDP contraction ever recorded. The original projection for the economy was an expansion of 4.1%, which would have been less than 2019’s 6.15%. Reported virus cases in China were lower on Sunday than the previous day, with 12 new cases reported after 16 on Saturday. There is a report circulating that the US will postpone tariffs for 90 days as the world hopes to begin recovery from the virus. The People’s Bank of China, PBoC has lowered its 1-year loan prime rate to 3.85% from 4.05%.


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