FX Update: Markets trying to shake off coronavirus fears FX Update: Markets trying to shake off coronavirus fears FX Update: Markets trying to shake off coronavirus fears

FX Update: Markets trying to shake off coronavirus fears

Forex 5 minutes to read
John Hardy

Head of FX Strategy

Summary:  Currencies are taking their lead from a surge in risk appetite overnight as Chinese markets bounced back from the tremendous gap lower on Monday. The RBA decided not to chop rates despite bushfire and coronavirus fears driving a modest bounce in AUD. In the US, we still await the result of the Democratic Iowa caucuses after a glitch prevented a result overnight.

A number of pivotal levels have been reached across commodity and fixed income markets recently on the fallout from the coronavirus crisis, even if the impact into major equity markets has been limited. Levels like the 1.50% yield point for the US 10-year T-note and the 2.00% 30-year bond have both been reached and crude oil has slipped to major psychological and chart price points as well. These are the kinds of levels . Among currencies, the AUDUSD has reached the major 0.6700 area and looks very similar to the action in the crude oil and other commodities charts as we discuss below.

The RBA refrained from hiking rates, as most expected (though I thought they might go for a cut). The AUD bounced modestly in reaction as the RBA cited hopes that the economy is still on a solid footing, noting strong employment and real estate prices. I suspect that the RBA is simply reversing what little policy easing room it has left before launching QE to wait for conditions on the ground to be outright recessionary before cutting rates again.

Yesterday’s US ISM Manufacturing Survey for January bounced back above 50.0, a surprisingly strong result, but one marred by the fact that coronavirus situation was only impacting in the final days of the month. As well, the employment sub-index. Pessimists were hasty to point out that back in early 2008, the ISM Manufacturing never got as low as it did during this recent episode and bounced back above 50 for a couple of months before lurching into a nasty slide as the global financial  crisis entered its critical phase.

We were meant to find out the results from the very first Democratic primary in Iowa yesterday, but some sort of technical glitch has prevented those results from emerging, with plenty of conspiracy theories afoot that this may have been about preventing a strong result for Sanders emerging. We’ll refrain from rumor and wait for the facts – but this could be a sign of a bitter and divided process as the populist progressive wing of the party is an existential threat to the centrist core that doesn’t understand what the Trump phenomenon and direct democracy are weakening the influence of traditional party structures.

We are taken aback at the market’s confidence that we will quickly get over this coronavirus situation with little lasting impact – preferring a cautious stance here until more is known on further risk of the disease spreading. In the meantime, consider the next leg of the US response to perceived currency manipulators as the US Commerce Department is mobilizing for potential duties on countries labeled as currency manipulators.

After the RBA no-cut decision, the AUDUSD price action was rather muted even if AUD was a bit more firm in some of the crosses. The key here for AUDUSD is the 0.6700 area and whether commodity prices and the Chinese growth outlook can stabilize and improve from here. We’re not hopeful for the AUD outlook and would lean against rallies for further downside risks into 0.6500 and lower.

Source: Saxo Group

The G-10 rundown

USD – the US dollar is lower against EM currencies, which are enjoying a snapback rally on the bounce in risk appetite overnight, but is still neutral within the G10 – watching for the next important US data tomorrow  (ISM Non-manufacturing and Friday’s jobs  data) but also the Democratic primary results through the huge March 3 Super Tuesday, which gets us well over a third of the nation having voted in the primaries.

EUR – the EURUSD supermajor has shied back away from the 1.1000 level after the recent approach, and interesting to note that Friday’s ugly risk off correlated with a spike  higher in EUR – suggesting that the currency may do well in carry-trade unwinding situations/risk off.

JPY – the yen serving its purpose as the highest beta currency to both risk appetite and safe haven yields as USDJPY slips back above 109.00 after bouncing off the 200-day moving average area below 108.50.

GBP – under heavy pressure as we enter the post-Brexit era on the uncertainty of the shape of the eventual EU trade deal and the delays this will mean for major manufacturers.

CHF – the franc rather modestly offered on the strong resurgence in risk appetite – rather lower beta to the ups and downs in risk sentiment swings than is the case for the JPY.

AUD – the RBA no cut shores up the downside risk in a heavily oversold currency, but a lot of heavy lifting needed to get our hopes up for the beleaguered Aussie…

CAD – USDCAD has more or less explored the full extent of the medium term range to the upside into 1.3300+, and oil prices and the Canadian and US economic outlooks need to show sustained promise for the pair to avoid slipping higher still.

NZD – kiwi traders are watching for the Q4 jobs and wages data tonight for relative strength trades like AUDNZD, which tried to turn the  corner  on the  RBA meeting overnight.

SEK – a surprisingly strong Swedish PMI survey yesterday offers modest  support, but EURSEK needs to plunge well back through the  9.60-65 area pivot zone to prove that it has turned the corner.

NOK – the trading ranges expanding in EURNOK recently and the  consolidation back lower looks impressive on the day until we have a look at how far the squeeze higher has taken the pair – to its highest close ever. NOK likely to continue trading in correlation with oil prices here.

Today’s Economic  Calendar Highlights (all times GMT)

  • 1500 – US Dec. Factory Orders
  • 2145 – New Zealand Q4 Unemployment Rate / Employment Change / Wages
  • 0130 – Australia RBA Governor Lowe to Speak



Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.