There was no love for the U.S. dollar this week as daily coronavirus cases climbed to a record high, above 72,000. For the past month, investors have largely ignored the growing health crisis in the U.S., but with daily cases more than doubling since late June, states have been forced to pause or roll back reopening measures.
There will be economic consequences – consumer confidence has already taken a hit with the University of Michigan consumer sentiment index falling to 73.2 from 78.1 in July. Economists anticipated an increase, which was surprising given the COVID-19 trend, but unsurprisingly, Americans are worried about the spread of the virus and, according to the director of the group that conducts the survey, “increases in COVID infections during this summer and early fall will only increase their uncertainty about future job and income prospects and start to limit discretionary spending.” We agree that many Americans are beginning to feel this way and with the July 31 extra unemployment benefit expiration date looming, the outlook for U.S. spending is grim. The CARES Act has largely kept the economy sheltered from a deep contraction, but with many of these benefits disappearing, the U.S. dollar could fall further until new stimulus measures are announced and approved by Congress.
The best performing currency today was the Swiss Franc followed by the euro. Swissie has been unusually volatile and moving purely on risk appetite (more so than the Japanese Yen on most days). U.S. dollar weakness took the euro higher. Investors hope that European leaders, who are meeting for the first time since the coronavirus crisis, will agree on a 750 billion euro COVID-19 stimulus package. It won’t be easy, but if a deal can be made, it will be wildly positive for the euro. But if talks break down and nothing comes out of this weekend’s meeting, EUR/USD traders will be sorely disappointed and will drive the currency pair lower in frustration.
The Australian dollar and New Zealand dollar also enjoyed healthy gains. New Zealand continues to reap the benefits of a well orchestrated containment of COVID-19. Manufacturing activity accelerated at its fastest pace since 2018, according to the latest PMI index, which jumped from 39.8 to 56.3. There’s a good chance that Sunday night’s PMI services report will reflect this same improvement. Meanwhile, sterling and the Canadian dollar lagged behind. Investors are worried that the UK’s ongoing reopening will lead to a second wave of infections. Wholesale prices in Canada rose less than expected, which could mean that next week’s retail sales report will show a smaller improvement.
Looking ahead, the RBA minutes, Canadian and UK retail sales, Eurozone and UK PMIs will be the main focus. With no major U.S. economic reports on the calendar, the U.S. dollar will take its cue from virus cases, stimulus headlines and risk appetite.
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