Quick Take
The more days that go by, the more traders are getting a sense that the worst in the NCoV scare may be behind us. This is not a hunch or something I write out of my gut feeling, but as usual, I let price action and the aggregated flows in G8 FX tell the story. We are witnessing, without exception, the three funding currencies (EUR, GBP, CHF) be dumped this week. Whenever speculators show a greater interest to borrow a low-interest rate currency to use it as a funding currency to profit, it suggests the carry trade is ‘back on’, and this would not be happening if the market was still engulfed by elevated levels of uncertainty. As one shifts the focus to equities, the same picture arises, with the S&P 500 making fresh record highs. Chinese equities? The same story, with 7 days of straight gains in the CSI 300 index. The Aussie has clearly benefited from this recovery in risk, at a time when the RBA Governor Lowe is starting to sound more upbeat on the economy judging by the speech given this Thursday. However, the Aussie performance was eclipsed by the aggressive mark-up in the New Zealand Dollar after the RBNZ hints at the end of its easing bias. Shifting gears to the world’s reserve currency, the USD maintains a bullish outlook with a notable dip buying participation noted as Fed’s Powell testimony failed to act as a catalyst to alter the northbound tendency. Its neighboring peer, the Canadian Dollar, had a stellar performance as Oil keeps recovering in line with risk, while the Pound saw very tepid aggregated flows.