Daily Market Update

Chinese-Led Risk Rally Sinks Dollar

July 06, 2020

The safe-haven U.S. Dollar is under heavy pressure to start the week as a Chinese-led rally in risk is dampening demand for the greenback.

Overview

The Bloomberg Dollar Index is down 0.4%, which is its fifth consecutive daily decline.  China’s CSI 300 Index rocked up 5.7%, its biggest daily increase since 2015.  An editorial in the influential Securities Times said that a “healthy” bull market after the pandemic is now more important than ever.  Bloomberg reports that Chinese social media exploded with searches for “open a stock account.”

The risk-on sentiment poured over into the European session and the Stoxx Europe 600 index touched its strongest level since June 10th.  American futures also point to a strong open for domestic equity markets.  Rising equity prices come even as the World Health Organization reported a one-day high in global coronavirus infections, including continued record cases in many U.S. States.

This morning’s economic docket is worthy of attention as it is the only foreseeable event that could knock risk sentiment off its high pedestal.  The final reading of U.S. service and composite PMIs for June are due out at 9:45 a.m. We have been paying special attention to Purchasing Manager’s data during the pandemic as it gives a forward-looking view of what is in store for the economy.  ISM non-manufacturing index will be out at 10:00 a.m.

 

What to Watch Today…

  • No major events scheduled for today

Complete Economic Calendar can be found here.

 

CAD

Commodity-based currencies, led by the Norwegian krone, all rallied against the U.S. dollar as the price of Brent crude rose.  The Canadian dollar also eked out gains versus the greenback ahead of this morning’s release of the Bank of Canada’s second quarter business outlook at 10:30 a.m. A separate report showed that Canadian consumer confidence rose for the 10th straight week.

The EIA crude oil inventory report is due out Wednesday and may set the tone for the krone and the loonie during the second half of the week.

The Australian dollar climbed for the 6th consecutive day.

 

GBP

Despite the majority of the dollar’s rivals breaking considerably stronger this morning, the British pound is only modestly higher.  Regionalized peaks in COVID cases and the continued cloud of Brexit uncertainty may cap the sterling’s gains, especially in comparison to other currency pairs.  However, we must keep in mind that if negotiators are successful in avoiding a hard Brexit at the end of the year, the sterling may experience a rather aggressive “make-up” rally versus the greenback.

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