Home > XE Currency Blog > XE Market Analysis: North America - Mar 01, 2021

AD

XE Currency Blog

Topics7787 Posts7832
By XE Market Analysis March 1, 2021 7:58 am
    XE Market Analysis's picture
    XE Market Analysis Posts: 5711
    XE Market Analysis: North America - Mar 01, 2021

    The dollar rebounded out of lows, with European markets on the bid after Asian markets were on the offer. European markets seemed more reactive to a lift in Treasury yields amid a backdrop of rebounding global stock markets and commodities. The DXY dollar index recovered from a 90.69 low to a three-week high at 91.13, while EUR-USD dropped 0.6% from the Asia-session high to a 12-day low at 1.2029. USD-JPY printed a fresh seven-month high at 106.75. Most yen crosses traded firmer, too, recouping some of the lost ground that was seen during the heightened spate of risk-off positioning last week. The Japanese currency has recently been trading at major trend lows against most currencies thanks to the relatively rooted JGB yields, which has seen differentials versus other sovereign yields tip markedly out of the currency's favour. The Australian and New Zealand dollars, which had outperformed during the Asian session, subsequently fell back against the greenback. AUD-USD slumped back to levels around 0.7730 after posting a high at 0.7774. The pair remains overall heavy after the outsized near 3-big-figure loss that was seen at the tail end of last week. USD-CAD settled near 1.2700 after earlier pegging a 1.2673 low, which marked a near 80-pip drop from Friday's peak at 1.2751. The Canadian dollar found support from the near 2%-plus rise in oil prides. Front-month WTI futures posted a high at $62.92, up over $1.50 from Friday's low but remaining comfortably below the 13-month peak that was seen last Thursday, at $63.81. The pound traded mixed, gaining on the dollar, euro and yen, but losing ground against the dollar bloc. Cable posted a high at 1.3999 before settling nearer 1.3950, which is still well up on Friday's low at 1.3887. In news, the House of Representatives passed the Democrats $1.9 tln stimulus package at the weekend, as expected. The stage is set for a handoff from monetary stimulus to fiscal stimulus, which is likely to the source of ongoing indigestion in bond markets, although the prospect for stronger corporate earnings should still carry stocks higher, especially cyclicals (growth stocks, such as tech, will in a rising rate environment be more sensitive to the erosion in the present value of future expected cash flows). The UK government, which is preparing its annual budget (to be presented this Wednesday), signalled that the prospect of a strong growth rebound is limiting the need for large tax rises.

    [EUR, USD]
    EUR-USD dropped 0.6% from the Asia-session high to a 12-day low at 1.2029. The drop reflected a broad dollar bounce out of lows, with European markets more reactive to a lift in Treasury yields amid a backdrop of rebounding global stock markets and commodities. The DXY dollar index recovered from a 90.69 low to a three-week high at 91.13. Bigger picture, the reflation trade, which we assume will continue to unfold as the year progresses, should prove to be a dollar negative -- or at least that seems to be the consensus. But, the massive level of domestic stimulus in the U.S. may curtail the currency's downside potential more than it would have otherwise have been. The stimulus may force the Fed to tighten monetary sooner than it would have otherwise would, while the high level of domestic economic stimulation will also attract foreign capital investment.

    [USD, JPY]
    USD-JPY printed a fresh seven-month high at 106.75. Most yen crosses traded firmer, too, recouping some of the lost ground that was seen during the heightened spate of risk-off positioning last week. The Japanese currency has recently been trading at major trend lows against most currencies thanks to the relatively rooted JGB yields, which has seen differentials versus other sovereign yields tip markedly out of the currency's favour.

    [GBP, USD]
    The pound has traded mixed, gaining on the dollar, euro and yen, but losing ground against the dollar bloc. Cable posted a high at 1.3999 before settling nearer 1.3950, which is still well up on Friday's low at 1.3887. The UK government, which is preparing its annual budget (to be presented this Wednesday), signalled that the prospect of a strong growth rebound is limiting the need for large tax rises. The speedy rollout of Covid vaccinations has been attributed to the brightening outlook for the UK economy, and recent outperformance in the pound.

    [USD, CHF]
    Policymakers at the SNB retain a chronic disquietude about the franc's value. Unlike most central banks, the SNB explicitly incorporates the franc into monetary policy to ward off speculative purchases of the currency, which would impart deflationary forces (via cheaper imports) with the consequential impact of an unwelcome tightening in real interest rates. The central bank repeated at its latest quarterly monetary policy review that the franc remains "highly valued" and said it is ready to intervene directly in the foreign exchange market.

    [USD, CAD]
    USD-CAD has dropped to a 1.2673 low, down nearly 80 pips from Friday's peak at 1.2751, aided by a 2%-plus rise in oil prides. Front-month WTI futures posted a high at $62.92, up over $1.50 from Friday's low but remaining comfortably below the 13-month peak that was seen last Thursday, at $63.81. Crude prices are showing about a 33% gain on the year so far, which marks a substantial improvement the terms of trade of the Canadian economy. The supply-gap oil super-cycle theses remains strong in market narratives, with many predicting prices at $100, underpinned by demand stimulation caused by the upcoming massive stimulus in the U.S. and EU. The anticipation of a return to societal norms on the back of Covid vaccination programs, and the lifting of travel restrictions, go hand-in-hand with this view. We harbour some doubts about this. Rising U.S. supply and potential for a weakening in discipline amid the OPEC+ group to maintain supply quotas may offset rising demand. In terms of 'known unknown' risks, to use epistemological phraseology, these include more transmissible SARS-Cov2 coronavirus variants that might prove resistant to current vaccinations, which would threaten a further prolonging of restrictive measures, or perhaps another clash between Saudi Arabia and Russia on oil production quotas. The OPEC+ group meets this week (March 3rd-4th) to decide on April quotas, with Moscow reportedly calling for a relaxation while the Saudi's want to maintain output at prevailing levels.

    Paste link in email or IM