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Business

Dollar firm overall, but oil price jump boosts commodity currencies

TOKYO (Reuters) – The dollar gave up some of its recent gains on Thursday after a 10% jump in oil prices boosted commodity-linked currencies, though uncertainties over the coronavirus pandemic kept the safe-haven greenback strong against other major currencies.

Oil prices leapt on hopes that U.S. diplomacy would succeed in persuading top exporters Saudi Arabia and Russia to end a price war that has driven the crude oil market to its lowest levels in almost two decades, and on a Bloomberg report on China’s oil purchases.

That lifted commodity-linked currencies, with the Australian dollar gaining 0.6% to $0.6110 AUD=D4, and the Canadian dollar firming 0.65% to C$1.4146 CAD=D4.

But against most major currencies, the U.S. dollar held firm, as investors unnerved by the massive disruption to global trade caused by the pandemic took comfort from holding cash dollars.

The dollar index against a basket of six major currencies =USD stood flat at 99.470 after a gain of 0.53% overnight as the U.S. currency advanced against most of its major peers.

The euro dipped 0.1% to $1.0947 EUR= after a 0.69% fall on Wednesday.

The safe-haven yen, meantime, eased slightly, trading at 107.24 yen per dollar JPY= after hitting a two-week high of 106.925 on Wednesday.

Markets were spooked after U.S. President Donald Trump’s warning late Tuesday that Americans faced a “painful” two weeks ahead in fighting the coronavirus.

“If America’s optimistic president is warning the worst of the pandemic is yet to come, what factory in their right mind would keep the doors open and workers on the payroll?” asked Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

“With only a few actual data points so far, the results indicate this is looking more like a depression than a garden-variety recession.”

The starkest evidence of the damage came last week when weekly U.S. initial jobless claims, one of the earliest gauges of economic trends, jumped to 3.28 million, blowing past the previous record of 695,000 set in 1982.

The next jobless claims data, due at 1230 GMT, is expected to show another 3.50 million applications last week.

Economists’ forecast in a Reuters poll range from 1.5 million to 5.25 million.

“As we’ve seen yesterday, a deterioration in the U.S. economic outlook is likely to lead to strength in the yen against the U.S. dollar,” said Shin-ichiro Kadota, senior strategist at Barclays.

EMERGING MARKET CURRENCIES BATTERED

The pandemic has shown few signs of abating with global cases on track to hit one million within a day or two, stretching over more than 200 countries.

While there are signs infections in hard-hit Italy might be levelling off after a few weeks of lockdown, cases are growing rapidly in many other countries including the United States.

Asian financial centres that have so far been spared the worst of the epidemic, such as Tokyo, Hong Kong and Singapore, have seen alarming rises in recent weeks.

“Trade isn’t active as few want to take extra risks. And for some traders their own health is becoming more important than trading,” said a trader at a U.S. bank.

The virus is also spreading quickly in many emerging market countries, which could struggle to contain an epidemic because of their large, poor populations and weaker healthcare systems.

Such worries are putting additional stress on countries saddled with economic vulnerabilities such as wide current account deficits, high levels of external debt and limited foreign currency reserves.

In Asia, the Indonesian rupiah IDR= lost 0.5% to edge near its 22-year low hit late last month. Since the virus fears started to hit markets in late February, the rupiah has fallen 17%.

The Brazilian real BRL= and the South African rand ZAR=D4 both hit record lows on Wednesday while the Turkish lira TRYTOM=D4 sank to a two-year low.

Since late February, the real has lost 16% while the rand has given up 17% and the lira has shed 9%.

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Economy

FX daily turnover tops $2.3 trln in March as virus sparks volatility surge – CLS

LONDON, March 24 (Reuters) – The meltdown in financial markets over the coronavirus has sparked a jump in foreign exchange trading volumes, with average daily turnover so far in March up 27% on February’s numbers as volatility soared, CLS said on Tuesday.

CLS, a major settler of trades in the foreign exchange market, said in a statement that high average daily volumes seen at the end of February had continued into March, with spot volumes in particular surging.

So far in March, average daily turnover has hit $2.3 trillion, CLS said. That compares with $1.8 trillion in February and $1.86 trillion in March 2019.

March has seen forex market volatility soaring to multi-year highs as investors panicked over the economic impact of the coronavirus. (Reporting by Tommy Reggiori Wilkes)

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Economy

UPDATE 1-March FX daily turnover hits $2.3 trln as virus fuels volatility – CLS

(Adds details, context, quote)

LONDON, March 24 (Reuters) – The meltdown in financial markets over the coronavirus has sparked a huge jump in foreign exchange trading volumes, with average daily turnover so far in March up 27% on February as volatility soared, CLS said on Tuesday.

CLS, a major settler of trades in the foreign exchange market, said in a statement that high average daily volumes seen at the end of February had continued into March, with spot volumes rising by more than 50%.

So far in March, average daily turnover has hit $2.3 trillion, CLS said. That compares with $1.8 trillion in February and $1.86 trillion in March 2019.

CLS said February saw record daily volumes in trading of the Korean won, the Singapore dollar and the Israeli shekel.

March has seen forex market volatility soaring to multi-year highs as investors panicked over the economic impact of the coronavirus.

The Deutsche Bank Currency Volatility Index rose to more than 16% last week, having traded near record lows of below 5% in early February.

Major currency pairs such as dollar/yen and sterling/dollar have regularly seen daily moves of more than 1%, while currencies such as the Australian dollar and Norwegian crown have seen dramatic, multi-percent tumbles.

Many emerging market currencies have sunk to record lows as investors scrambled to buy dollars, the currency of choice for money managers and companies in a major economic crisis.

Traders say reduced liquidity has also been a problem, exacerbating the volatility in forex markets that has caught so many investors off guard.

CLS’s Head of Information Services Masami Johnstone said the jump in March volumes included a rise of 55% in spot trading, 15% in FX swaps and 36% in forwards.

“This was against the backdrop of the increased market volatility,” she said in the statement. (Reporting by Tommy Reggiori Wilkes; Editing by Jan Harvey)

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Economy

Brazil real's natural exchange rate is weaker, due to low rates -Guedes

BRASILIA, March 9 (Reuters) – The Brazilian real’s natural exchange rate is weaker now given the record low level of interest rates, Economy Minister Paulo Guedes said on Monday, adding that the currency is also being determined by the progress – or otherwise – of economic reforms.

Speaking to reporters in Brasilia as the real slumped to a new low and the central bank intervened selling dollar reserves for the first time since November, Guedes reiterated his view that the real is a floating exchange rate, albeit at a different level now than before.

“Brazil has lower interest rates and a slightly higher (dollar) natural exchange rate, but it is a floating exchange rate,” Guedes said outside the Economy Ministry in Brasilia.

“There’s coronavirus, there’s crisis, and if reforms aren’t progressing the (dollar) goes up; if reforms are moving, it (the dollar) goes down,” Guedes said.

The real fell as low as 4.7939 per dollar on Monday, extending its losses so far this year to 16%, before the central bank’s auction of $3 billion worth of reserves pulled it back to around 4.72 per dollar.

Brazil’s Congress passed a landmark social security reform bill last year that will save the Treasury some 1 trillion reais over the next decade via a range of measures including raising the minimum retirement age and increasing pension contributions.

But so far this year, the government has made little tangible progress on its aim to push through tax reform, “administrative reform” of the public sector and “federative pact” overhaul of state and federal government finances.

Asked if this was the time to sell international FX reserves, Guedes again highlighted the need to accelerate the reform process.

“If reforms go ahead and people are (still) trying to buy dollars, the central bank has said it will sell (dollars). On the other hand, if reforms stall … then uncertainty continues. But this is a problem for the central bank,” he said.

In 2018, Guedes said that in a case of “speculative attack” on the real at around 4.50 or 5.00 per dollar, the central bank could sell $100 billion, which would also help improve the public finances.

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