Daily Market Pulse

Blue wave with six days to go


The USD strengthened 0.10% against a basket of currencies on Tuesday ahead of the U.S. elections next week, while worries remained about the second wave of Covid-19 infections. U.S. President Donald Trump acknowledged yesterday a Covid-19 economic relief deal would likely come after the Nov. 3 election. On the subject of the election, with six days to go, the market now thinks a potential Biden’s victory is a near-certainty, albeit the nationwide polls show that Trump has been narrowing the gap. On the economic data front, the Commerce Department said on Tuesday that orders for long-lasting factory goods increased for the fifth consecutive month in September, the latest sign manufacturing companies are rebounding from supply-chain disruptions and shutdowns related to the Covid-19 pandemic.


Across Europe, Covid-19 cases continue to rise, and new tighter restrictions have been imposed including a potential extension of France’s curfews and Germany being prepared to close restaurants. In Italy, protests against new measures turned violent. Against this backdrop, Covid-19 second wave added pressure on EUR, which closed down 0.11% against the greenback on Tuesday. Earlier this morning, the Airport Council International Europe warned that 193 of Europe’s 740 commercial airports face insolvency, jeopardizing 277,000 jobs. The economic calendar is relatively quiet today, with the focus firmly on the European Central Bank's meeting on Thursday.


The GBP appreciated 0.15% against the greenback on Tuesday, to regain some of the ground lost after three days of losses. The extended trade negotiations between the U.K and the European Union are continuing, fueling the constructive tone which hovers in the market, however with little indication this week of how the negotiations have progressed. On the other hand, adding pressure on GBP, the U.K reported their highest Covid-19 death tolls since the first wave of the Covid-19. At the same time, Prime Minister Boris Johnson is facing a revolt of his lawmakers over restrictions.


The safe-haven JPY traded higher 0.4% against its U.S counterpart on Tuesday, pulled up by worries that surging Covid-19 infections in Europe and the U.S could further damage an already-battered global economy. The Japanese yen also got some support from upbeat earning reports, with bicycle parts market Shimano Inc. soaring more than 17% after the company upgraded its forecast for annual operating profit. Today, on the economic front, the market’s attention will be on Retail Sales data.


Yesterday, the CAD traded in a narrow range during the relatively quiet trading session. The Loonie strengthened 0.17% against the USD on Tuesday as oil prices rose and investors awaited an interest rate decision by the Bank of Canada (BoC). The West Texas Intermediate (WTI) prices closed at US$39.57/barrel as oil companies shut down some U.S Gulf of Mexico oil production ahead of an approaching storm. Today, market participants will wait for the BoC meeting, which is due to make an interest rate decision and update its economic outlook. The central bank’s decision could be muted in the FX market as BoC’s governor Tiff Macklem has said it will leave rates at a record low of 0.25% until its 2% inflation target is achieved sustainably, which it does not expect for at least two years.    


The MXN dropped 0.55% against the USD on Tuesday, with figures showing the country's trade surplus remained wide by historical standards in September as exports picked up faster than imports during a burgeoning recovery from the Covid-19 pandemic. The official data showed that exports came in 3.7% (YoY) and have rebounded significantly more than imports (-8.5% YoY). Furthermore, the figure signals that the recovery in activity continued at the end of 3Q/20. Today, in the absence of Mexican economic data and political events, USD/MXN traders will monitor the looming U.S. election. 


The Chinese yuan recovered some ground lost, closing 0.11% higher against the USD on Tuesday, while China stocks also rose around 0.16%. The gains in both markets were led by further gains in consumer and healthcare companies, as positive sentiment was lifted by hopes of a speedy economic recovery from the Covid-19 crisis. The CNY also found support from a Reuters’ survey showing that China’s 4Q GDP is likely to come at 5.8% (YoY), up from 4.9% reported in the July-September period as economic recovery accelerated in the 3Q after consumers shook off their Covid-19 caution. From the Fifth Plenary Session of the 19th Communist Party of China Central Committee opened on Monday, Vice-Premier Liu He said earlier this morning that the country's financial departments will promote a new round of development and reform and opening-up of the capital market, and will study the gradual unification and simplification of pathways for foreign investors to participate in China's capital market.


The BRL edged down 1.44% against the USD on Tuesday to touch its lowest level since late May after House Speaker Rodrigo Maia criticized Bolsonaro’s allies for obstructing the voting agenda in the House, a clear reference to the fiscal reforms. Market participants reacted negatively to Maia’s statement as that raised concerns about one of the major sticking points in the Brazilian economy, the Brazilian government's ability to fund a new fiscal program. Today, investors and traders will wait for the policy meeting of Brazil's central bank's rate-setting committee (Copom). The bank is expected to leave its benchmark Selic rate on hold at a record low of 2%.  


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