Thursday could be a bruising day for US Dollar. One of the reasons
investors are liquidating their positions is depressing news. It is also
anticipated that social distancing rules may be extended to April 30th, which
delays the return to normal business activity. With the focus on US data this
week, a disappointing jobless claims or non-farm payrolls report could also
send USD reeling against other currencies.
If the first day of April 2020 was an indication of what’s
to come, it will be a very rocky second quarter. After falling more than 24%
during the first quarter, the Dow Jones Industrial Average plunged. Currencies
have been taking their lead from equities, so it was no surprise to see some of
the currencies falling against the greenback. The strongest currencies continue
to be the USD and JPY – which absorbed all of the gains in the first quarter.
However the supremacy of the USD is likely to come into
question in the weeks ahead. Investors have been buying it on the premise that
the rest of the world will be stuck in recessionary conditions longer than the
United States because there can’t be a global recovery without a US recovery. While
that may be true, the data coming from many countries is weak. The spread of
coronavirus in United States is alarming and lockdown is becoming a serious
concern.
Looking ahead to Friday’s non-farm payrolls report, it
could it be even worse. In many ways tomorrow’s jobless claims report will
be more telling and more market moving. The current forecast is 3.5
million, which sounds about right but the underlying numbers are probably much
worse.
According to New York State Labor Department, between
March 23rd and March 28th, the agency received more than 8.2 million calls
compared to just 50,000 in a typical week. Of course many of those calls are
redundant but with just one state receiving that many requests, we can only
imagine how many claims are being requested and filed nationally.
With the exception of JPY, all of the major currencies are lower
against USD. Despite an unexpectedly strong increase in German retail sales,
Eurozone PMIs were revised lower. UK PMI was also revised lower. Although
manufacturing activity increased in March according to Australia’s PMI report,
the RBA minutes were very dovish. According to the central bank a very
material contraction is expected in Australia with significant job losses over
the months ahead.
