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US Dollar, Yen May Rebound as Powell and Mnuchin Testify

US Dollar, Yen May Rebound as Powell and Mnuchin Testify

2020-05-19 07:00:00
Ilya Spivak, Head Strategist, APAC
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US DOLLAR, YEN, COVID-19 VACCINE, POWELL, MNUCHIN – TALKING POINTS:

  • APAC markets followed Wall Street higher on Covid-19 vaccine hopes
  • Powell, Mnuchin may flag slow stimulus rollout as the economy shrinks
  • US Dollar, Yen may rebound as market sentiment turns sour once more

The anti-risk US Dollar and Japanese Yen fell in Asia-Pacific trading hours while the sentiment-geared Australian, Canadian and New Zealand Dollars rose alongside stocks. Regional bourses followed Wall Street higher – adding approximately 1.45 percent on average – amid hopes for a breakthrough in creating a Covid-19 coronavirus vaccine.

US biotech company Moderna Inc stoked optimism, saying its experimental vaccine was able to trigger an immune-system response in otherwise healthy patients to fight the virus, boosting hopes that a lasting way to manage the disease is in the offing.

US Dollar and Yen down, AUD and NZD up on Moderna coronavirus vaccine hopes

Chart created with TradingView

Nevertheless, the study in question is based on a small sample and was meant to clear the way for larger human trials, so its potential arrival on the market is probably some way off. In fact, futures tracking the bellwether S&P 500 stock index are pointing conspicuously lower to suggest that the upswell in risk appetite may be coming undonealready.

This makes sense: the painful knock-on effects of the economic weakness triggered by the outbreak are likely to bedevil growth for quite a while before any vaccine is practically available. With that in mind, the spotlight turns to upcoming testimony from US Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin. They are due to give a progress report on the CARES Act, the anti-Covid stimulus package.

POWELL, MNUCHIN TESTIMONY MAY SOUR MARKET MOOD ANEW

The message from on offer is likely to be a sobering one. A report from the Treasury Department published yesterday revealed that only $37.5 billion of the allotted $500 billion earmarked to help struggling businesses has been deployed, though $195 billion has been committed to supporting credit access, according to Mr Mnuchin). The relatively sluggish rollout bodes ill for the pace of economic recovery.

Sentiment may sour as the stark reality of the current US and global economic conditions – the worst since the Great Depression of the 1930s – is presented alongside evidence depicting the slow-moving stimulus effort. That might see the US Dollar and Yen reclaim lost ground while cyclical commodity-linked currencies succumb to outsized selling pressure.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

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