Dollar Rebounds in Cautious Trade, Extends Rout Against Asians, EMS

Summary: The US Dollar, stocks and bond yields rebounded in cautious trade amid the coronavirus crisis and global easing policies. The Euro fell 0.81% to 1.1045 (1.1145) while Sterling retreated 0.35% to 1.2407 (1.2477). The Australian Dollar was little changed at 0.6170 from 0.6167 yesterday. The USD/CAD pair soared 1.25% to 1.4147 (1.4003) as Brent Crude Oil prices plunged to 18-year lows to USD 22.70 from USD 25.20. Growing fears that the coronavirus shutdown could last months and reduce demand for fuel weighed on oil prices. The safe-haven Yen was little changed against the US Dollar at 107.90 (107.97). Overnight, USD/JPY slumped to a low at 107.121, 2-week lows. Meantime the Dollar extended its rout of Emerging Market and Asian currencies after the Chinese and Singapore central banks cut interest rates. USD/CNH (Dollar/Offshore Chinese Yuan) climbed to 7.1120 from 7.0875 after the People’s Bank of China unexpectedly cut its interbank rate by 20 basis points. Singapore’s Monetary Authority (MAS) aggressively eased monetary policy by adjusting its currency band, which was expected. USD/SGD was a touch lower at 1.4242 (1.4275) in late New York trade. The Dollar advanced 1.04% against the Indonesian Rupiah (USD/IDR = 61,337.5), and 0.98% against the Indian Rupee (USD/INR = 75.59). Against the Thai Baht, the Greenback rose to 32.65 from 32.55. US equities rallied, lifted by gains in healthcare stocks. The Dow was 3.3% higher in late NY to 22,280. (21,850) while the S&P 500 advanced 3.4% to 2,625 (2,540). The key US 10-year bond yield climbed 3 basis points to 0.70%. In contrast, Germany’s 10-year Bund rate fell 2 basis points to -0.50%. Australia’s 10-year treasury yield dropped to 0.76% from 0.90%.
US Pending Home Sales rose 2.4% in February, beating forecasts of -1.8%, but lower than January’s 5.2%.

USDCNH Daily Chart - DailyFX - 31 March 2020 (1)
USDCNH Daily Chart – DailyFX – 31 March 2020 (1)

On the Lookout: With so many short-term factors seemingly affecting trade, caution prevailed in FX. The disconnect between the Dollar/majors and Dollar/Emerging Markets widened as Asian central banks joined their major counterparts and cut interest rates. Month and quarter-end adjustment factors also contributed to the cautious approach.
Today sees more primary economic data releases with China’s Manufacturing and Non-Manufacturing PMI’s for March taking the spotlight. Headline Manufacturing PMI is expected to recover to 44.9 from February’s 35.7 with Non-Manufacturing PMI climbing to 42.1 from 29.6.
Other data released today include Australia’s Private Sector Credit, Japanese Housing Starts, Unemployment Rate and Retail Sales, New Zealand’s ANZ Business Confidence Index for Asia.
European data sees Swiss Retail Sales, German Unemployment Change, German Flash Headline and Core CPI. The UK reports on its Current Account and Final GDP. US data released today are: Case Shiller 20-year House Price Index, Chicago PMI and Conference Board Consumer Confidence.

Trading Perspective: Expect the cautious approach to dominate FX today with traders focusing on the economic data releases. The coronavirus outbreak will still dominate with the various short-term influences in the background.
We focus on two Asian currency pairs (USD/THB and USD/SGD) in today’s commentary given their prominence in FX after the Chinese and Singapore central banks delivered interest rate cuts.
The latest Commitment of Traders/CFTC report saw net speculative USD shorts increase mainly as a result of a build in Euro, Sterling and Yen bets. We look at the individual breakdowns in tomorrows commentary.

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