Rising Covid-19 cases in United States and abroad adds risks to markets, reports Adam Button.
The Coronavirus backslide isn't just a U.S. story; Australia grabbed headlines over the weekend because of outbreaks, and several countries are hitting various records. The U.S. dollar starts another week on a sour note, down against all currencies, with silver and euro at the lead and the Canadian dollar (CAD) at its weakest after a dismal business survey from the Bank of Canada.
The U.S. services ISM survey jumped to 57.1 from 45.5, showing the biggest one-month rise on record is the early highlight of the week.
The jump in Australian cases along with flareups in China and Japan show how difficult Covid-19 will be to contain. Over the weekend, U.S. cases rose again but the market has so far brushed it aside. Some of that is because of lower mortality rates but there are also signs of complacency as summer hits.
The tug-of-war between easy money and coronavirus fears has turned into a summer stalemate. So far, the economic impacts of the lockdown and a rebound in economic measures on pent-up demand and massive government stimulus was predictable.
The more challenging task is figuring out the expiration of fiscal measures. Time certainly isn't on the economy's side in the pandemic, but no one is quite sure when time will run out. That should bring economic data to the front burner in the weeks ahead.
The Bank of Canada business outlook tumbled to -35.0 vs from 22.0, highlighting deeply negative conditions across all regions and sectors due to the pandemic and drop in crude oil prices.
Gold 1796, Aussie's Virus Return
Risk appetite finally tapers off after the Bank of Japan said it will not expand its easing operations considering rebounding cases of Covid-19, while the U.S. Dollar stabilizes following five straight days of declines.
The Australian dollar (AUD) is the biggest loser of the day on a combination of cautious commentary from the Reserve Bank of Australia, the spiraling rate of Covid1-9 cases in Australia and overall retreat in risk appetite.
The overarching reason for the latest round of U.S. dollar weakness is risk appetite. The latest jolt came from China, where the Shanghai Composite gained 13% over the same stretch. Money may be returning to emerging markets as sentiment improves.
Moreover, the U.S. economy could be suffering from the effects of rising domestic Covid-19 cases. Every day where cases remain elevated in the United States compared to other developed markets, it loses attractiveness – something we've been highlighting for a while.
The dollar managed to recoup some losses Monday on a jump in the ISM non-manufacturing survey to 57.1 from 45.4 but is now under fresh pressure.
An initial retreat in crude oil has added to the CAD’s losses, which were built from yesterday's Bank of Canada survey. USDCAD may eye 1.3610 on deepening risk aversion, while the euro/loonie pair could retest 1.5420. Gold nears $1,800, showing no sign of breaking below its medium term trendline support, while the euro risks correcting to 1.1240.
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