Whereas the week from 15th to 21st June had been a mixed bag for global risk appetite, with global equities up 2% but the Dollar also appreciating 0.8% in trade-weighted terms, last week was a clearer case of “risk-off”. Global equities gave back all of their gains to end the week down 2% (and unchanged since 1st June) and the Dollar, which tends to trade like a safe-haven asset, gained a further 0.5% to its strongest level since 27th May. Similarly the Swiss Franc inched up 0.3% to a five-week high.
The equity rally and safe-haven asset outperformance can largely be attributed to growing concerns about the risk of a “second-wave” of covid-19 cases and the impact on a nascent global economic recovery. These concerns have been sparked by a renewed rise in cases in a number of countries, including the United States (where some states have had to re-tighten lockdown rules) and major cities. The death rate in many Latin American countries has also been rising very rapidly.
Despite this backdrop, the more risk-sensitive Australian and Kiwi Dollars held their own. The Australian Dollar ended the week 0.4% stronger in trade-weighted terms while the Kiwi Dollar was choppy. It rallied in the run-up to the RBNZ policy meeting on Wednesday but the central bank’s warning that currency appreciation had put further pressure on NZ export earnings and dampened the outlook for inflation saw the Kiwi Dollar weaken about 1%. The Kiwi Dollar then rebounded to end the week broadly unchanged.
Sterling once again underperformed, shedding 0.4% and hitting a 3-month low. It briefly rallied in the wake of stronger-than-expected UK composite PMI data for June, released on Monday morning, but then lost ground on Thursday and Friday. Whether the planned further easing of national lockdown rules in early July will be able to give Sterling back some shine remains to be seen.
