The issue regarding coronavirus remains at the forefront of global financial markets. It continues to dominate, and it seems that investors will not calm down even with its end, since its consequences can be extremely negative for the global economy
The main news of recent days for investors has been an increase in expectations of a slowdown in the US economy. If Fed officials have not yet shown serious concerns about the high probability of a slowdown in the US economy due to the inhibition of the Chinese economy and due to the influence of the coronavirus, then former head of the regulator J. Yellen made it clear on Wednesday that the risks to the American economy remain high and that this misfortune may push the US into recession.
On the other hand, in the wake of the negative that poured into the markets, the US dollar was under noticeable pressure, but not everywhere. After rising in the current last week, it declined against the yen, the Swiss franc and the single European currency. An important role was played here by the growth of expectations that the negative impact of coronavirus on the American economy would force the Federal Reserve to lower interest rates, which, of course, would reduce its attractiveness.
At the same time, the exchange rate of the American currency received support in pairs with the currencies of countries with developing economies from the main ones it rose against the Australian, Canadian and New Zealand dollars. These currencies are commodity and raw materials and strongly correlate with the dynamics of commodity and commodity assets. For example, an "Australian" currency reacts nervously to falling prices for iron ore, the export of which is the most important in the country's economy. Meanwhile, the Canadian dollar is responding to rising or falling oil prices.
The expectation of a slowdown in the global economy amid falling demand for commodity and commodity assets in China is crushing the exchange rates of these currencies. In this case, the American dollar, despite the problems, is growing in relation to them. And such dynamics may continue for some time.
Given recent realities, we believe that, it will continue to remain the main "newsmaker" which will conduct markets until the peak of the influence of coronavirus on investor sentiment passes. Moreover, we believe that by the end of this week, the yen, franc and partly the euro will receive some support in the currency exchange market, which began to increase in the wake of the latest published positive economic statistics on the eurozone. In turn, Canadian, Australian and New Zealand dollars will remain under pressure.
Forecast of the day:
AUD/USD is trading above the level of 0.6500. The persistence of panic in the markets associated with the influence of coronavirus on global economic growth will continue to exert a couple of pressure. This probability is confirmed by the dynamics of the distribution of net positions of futures contracts for the Australian dollar, according to the sentiment of major investors Commitments of Traders (COT). Given these prospects, we believe that the pair can continue to decline to the level of 0.6500 until the end of this week.
USD/CAD is testing a strong resistance level of 1.3345. We believe that negative market sentiment will put pressure on the Canadian currency, which means that if the price breaks the level of 1.3345, it will continue to rise to 1.3415.
