US DOLLAR PRICE FORECAST: BULLISH
- US Dollar[1] soars as market-wide liquidation puts a premium on cash
- Incoming economic news-flow unlikely to change risk-off narrative
- Peak in coronavirus spread needed before stimulus can be effective
The US Dollar has emerged as a distinct beneficiary of the market-wide panic triggered by the coronavirus outbreak. As whole national populations go to ground in a bid do contain the pandemic, economic activity has taken a crippling hit. Not surprisingly, that has severely eroded the outlook for any asset positively geared to global growth, be it stocks or pro-cyclical commodities like crude oil[2] and copper[3].
This has inspired a wave of selling across the market spectrum. Not surprisingly, the Greenback’s unrivaled liquidity has made it particularly attractive in this environment. That acts as a dampener on volatility and makes the Dollar a conveniently flexible vehicle for subsequent reinvestment whenever the turmoil eases. Over 80 percent of global monetary transactions are settled in USD[4], according to the BIS.
US DOLLAR TO LOOK PAST ECONOMIC NEWS-FLOW, FOCUS ON CORONAVIRUS
Looking ahead, markets are likely to remain focused on policymakers’ efforts to backstop the global economy amid the ongoing crisis. A wave of monetary and fiscal stimulus measures has been unleashed. Central banks around the world slashed lending rates and flooded markets with cheap credit. Governments have also moved to dole out cash as activity sputters and a jump in unemployment looms.
However, the ongoing lockdown in much of the world – essential though it is to fight the virus’ transmission – limits the immediate efficacy of such measures. Cheap financing and subsidized purchasing power are not incentive enough to spur a boom in investment and consumption when so much of global commerce is offline
