Global FX volatility continued to fall last week, as did volatility in global equities, although emerging and commodity markets continue to see sharp price action. Many major currencies have been largely directionless or are at levels where markets, faced with the herculean task of forecasting the economic damage stemming from national lockdowns, are seemingly struggling to paint a decisively bullish or bearish picture. Macro data releases, which until recently had taken back stage, are once again under scrutiny as March and April figures become available.
The US Dollar appreciated 0.6% last week in trade-weighted terms and has rallied a further 0.4% over the past 24 hours to the top end of a 10-day range. The global demand for Dollars is keeping the currency well bid markets but markets are also having to contend with very weak US macro data. Figures out last week show that retail sales and industrial output contracted sharply in March while Philadelphia and NY Fed manufacturing indices were at record-lows in April. The employment picture remains very ugly, with a further 5.2 million Americans claiming unemployment benefits for the first time in the week to 16thApril, taking the 4-week cumulative figure to a staggering 21 million.
The Australian Dollar had a reasonably volatile week but still managed to gain 0.4%, helped in part by better-than-expected employment figures for March.
But it was Sterling which outperformed, gaining 0.8% despite the British government confirming on Thursday, as broadly expected, that the national lockdown would last at least another 3 weeks. Other European currencies moved little, with the Euro broadly unchanged and the Swiss Franc up only 0.3%.
The underperformer was the Kiwi Dollar which weakened 0.8% last week despite staging a rally on Friday. Growing evidence that the Level 4 lockdown is having a large and negative impact on the local economy is seemingly weighing on New Zealand’s currency. The Kiwi Dollar has nevertheless rebounded 0.5% since Friday thanks to the release of materially higher-than-expected CPI-inflation of 2.5% yoy in Q1 – a surprising move up from 1.9% yoy in Q4 2019 – and to the government’s announcement today that the lockdown would be lowered to Level 3 in a week’s time.
