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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