Market Overview

5 May 2020

New Fears Favour US Dollar

Market risks associated with the pandemic are becoming more or less balanced as new coronavirus cases seem to stabilise. But the almost forgotten reason for worries is now reborn. The US-China trade tensions, now associated with the alleged concealment of information known to Beijing authorities on the harmful potential of the coronavirus in the early stages, have resumed. The treat of rising tariffs on Chinese imports came just as fragile signs of recovery are most haunted to restore global trade and communications.

However, US President Donald Trump could be well understood as he removes part of his own liabilities ahead of presidential elections planned for this fall. Besides, the issue of reducing enormous US expenditures and economic losses during the lockdown could be also on the table.

Washington could also benefit by supporting risk off sentiment as US assets including US Treasuries are becoming more attractive in this stance. This support could lead to the following consequences. The US Treasury may be issuing a new huge debt at a lower rate to compensate budget spending. The Treasury plans to borrow $3 billion in Q3 2020 compared to $1.28 billion for the whole of 2019. Benchmark ten-year Treasuries' yield is now at 0.67% compared to the Fed's fund rate at 0.25%.

One way or another, the artificial demand for US bonds fueled by rising risks that came at very terrible timing, may raise the demand for the US Dollar. The US Dollar index has risen from 99 points to 100 points since the US accused China of concealing information on the virus potential, and may continue to rise to its April highs of 101 points. Gold may rush to the $1700-1750 area.

On the other hand, this may mean another decline of risky assets - from stock indexes to currencies that depend on raw materials exports like the Loonie, the Aussie and the Kiwi to their April lows.


Disclaimer:

Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Mark Goichmann
Market Focus

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

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