CFD Markets News and Forecasts — 02-04-2021

According to ActionForex, analysts at RBC Financial Group look for next week’s Canadian labour market report to show strong job growth in March (+150k) as virus containment measures continued to ease. 

"Industries that make up the hospitality sector are massively over-represented in remaining economic weakness – accounting for 80% of the shortfall in total hours worked versus pre-shock (February 2020) levels – and that’s also where we expect to see more job growth in March as restrictions on things like restaurant dining (at least on outdoor patios) eased."

"To be sure, significant restrictions are still in place, and the employment shortfall versus pre-shock levels is still huge. Rising covid case counts — particularly new variants — have raised alarms around whether a third round of restrictions will halt the economic recovery."

"Still, risk of another near-term economic downturn looks smaller given the economy continued to grow through the winter wave of virus spread and restrictions. And vaccine distribution is also accelerating, with over 3 million doses arriving in Canada this week alone, and an additional 30+ million booked over Q2."

"As long as those vaccines remain effective against new and emerging variants (as is most likely), the timeline for when the economy can more fully and sustainably reopen continues to inch forward."

eFXdata reports that Bank of America Global Research discusses its expectations for the RBA policy trajectory in Q2.

"Data in 2Q will be critical for the policy outlook and the reason why the Reserve Bank of Australia (RBA) is likely to remain dovish. The RBA has made it clear that policy will be reactive in this cycle, similar to the US, even if recent unemployment outcomes will likely mean an upgrade to forecasts in May."

"With both the RBA and Fed committing to reactive policy, their relative credibility in the face of strong data, as reflected in the real rate differential, will be crucial for AUD/USD."

eFXdata reports that Societe Generale Research flags a scope for a topping pattern in EUR/JPY.

"EUR/JPY has been supported as higher US yields drag the yen down against almost everything. It seems pointless to fight this trend, or this correlation, and our main strategy is just to take advantage of the relative cheapness of USD/JPY puts to hedge against an earlier than expected peak in US yields." 

"However, EUR/JPY is 5% higher than the las time the Bund/JGB spread was here, and the trend in relative growth expectations makes the yen look very cheap relative to the euro."

FXStreet reports that analysts at MUFG Bank see limited downside for the Australian dollar from here and they expect a gradual move higher.  They forecast AUD/USD at 0.7700 by the end of the second quarter and at 0.7900 by the end of the year. 

“The Australian dollar, like all G10 currencies suffered in March with some increased uncertainty over the favourable global growth outlook that persisted through the early part of the year. As was the case at the start of the year, the 10-year government bond yields in Australia and New Zealand remain the highest with the US Treasury bond yield closing the gap that existed at the start of the year.”

"The RBA at its meeting emphasised again its commitment to keep policy exceptionally loose with QE to continue and no rate hike until 2024. The stance of the RBA in our view will help curtail AUD/USD gains but the fundamental backdrop will ensure gains ahead."

“AUD is also set to derive support from favourable terms of trade conditions. The government forecast energy and resource exports to reach a record, close to AUD 300bn in the year to June with China demand helping lift iron ore and other commodity exports.”

• We are in process of assessing this impact
• There will be new evaluation in the coming days

Bloomberg reports that the No. 2 official of the International Monetary Fund is optimistic that the Group of 20 largest economies next week will agree to extend debt relief to low-income nations through the end of this year.

According to the World Bank, the G-20’s Debt Service Suspension Initiative, which took effect last May, has delivered$5 billion in relief for more than 40 countries. The G-20 last October extended the program, originally set to expire in December 2020, through June, and agreed to consider a further six-month extension later.

G-20 finance ministers are set to meet virtually on April 7 for the second time this year on the sidelines of the IMF and World Bank spring meetings.

“It’s been our recommendation to extend this to the end of the year,” IMF First Deputy Managing Director Geoffrey Okamoto said. “I’m optimistic that the G-20 will reach a decision to extend it, though the exact terms of the extension are still under discussion.”

During today's Asian trading, the US dollar fell slightly as investors prepared for the release of US data that is expected to show employment growth and a decline in the unemployment rate in March, as the world's largest economy continues a steady recovery from the pandemic.

Sentiment against the dollar has improved in recent weeks, while treasury bond yields have surged as the Biden administration's planned more than $ 2 trillion stimulus and the rapid rollout of the COVID-19 vaccine spurred economic optimism as well as concerns about inflation.

While Friday's trading is likely to be muted as many financial markets are closed for the Easter holiday, analysts say the dollar's rise to multi-month highs is likely to continue as more investors bet on the economic recovery.

According to forecasts, the nonfarm payrolls in the United States, which are due to be published later on Friday, jumped by 647,000 in March from 379,000 in February. The unemployment rate is expected to fall to 6.0% from 6.2%.

The ICE index, which tracks the dollar's performance against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona), fell 0.08%.

FXStreet reports that UOB Group’s Strategists discusses the prospects for the greenback in the next months.

“The USD currently draws strength from the jump in US Treasuries yield over the past quarter. Our technical analysis also highlights the risk that a weekly close in the USD Index (DXY) above 93.40 would greatly increase the odds of further DXY strength to 94.30.”

“President Biden’s upcoming massive infrastructure stimulus plan may unleash potent fiscal forces that will add to USD uncertainty. Overall, our FX view remains that the current USD strength since the start of this year may not extend into 2H21. The brighter global growth outlook means that cyclical and risk currencies within the Majors and Asian FX space would regain their footing and strengthen against the USD. Specifically, we maintain our view that the CNY, SGD and most Asian FX will exhibit renewed modest strength in the latter half of the year.”

Bloomberg reports that Japanese Prime Minister Yoshihide Suga will become the first foreign leader to hold a face-to-face meeting with President Joe Biden in a summit planned for April 16.

The meeting in Washington demonstrates the importance the U.S. attaches to relations with Japan, Chief Cabinet Secretary Katsunobu Kato said in announcing the trip. “The U.S. and Japan share the basic values of freedom, human rights and the rule of law,” he added.

The timing of the summit with the U.S.’s most powerful ally in Asia underscores the Biden administration’s focus on shoring up ties with partners in the region, as it tries to pressure China over everything from human rights to trade and the global coronavirus vaccine rollout. Japan walks a narrow line as it seeks to maintain close ties with its only military ally, the U.S., while avoiding damage to economic ties with its biggest trade partner, China.

CNBC reports that China’s central bank said that interest in China’s digital yuan project could in part be driven by the surging price of bitcoin.

China’s digital yuan is an example of a central bank digital currency (CBDC) which aims to replace some of the cash in circulation.

The People’s Bank of China (PBOC) sees it as a way to advance cashless payments. It is effectively a digital version of fiat currency.

Wang Xin, PBOC research bureau director, said market interest in the digital yuan is “very strong and everyone is paying close attention.”

“On one hand, this is related to more and more central banks in the world participating in the development of domestic digital currencies,” Wang said.

“On the other hand, this (interest) may also be related to the large increase in the price of bitcoin,” Wang said.

The price of bitcoin has repeatedly hit record highs in the past few months. This year alone, it has more than doubled.

eFXdata reports that UOB Research discusses the USD outlook. 

"We keep to our view that this rebound in USD in March is unlikely the start of a sustainable uptrend, at least for the rest of this year. First and foremost, US bond yields - the trigger for this USD resurgence – appears to moderate in intensity after a steep rise across February – March. Also, the Fed is decisively patient to see the US economy through the pandemic before looking to normalize monetary policies," UOB notes. 

"Beyond the near-term temporary USD strength in 2Q21, a brighter global growth outlook as the vaccination rollout accelerates means cyclical and risk currencies within the Majors and Asian FX space would regain their footing and strengthen anew against the USD," UOB adds.