Emerging market currencies rose for a second consecutive week after oil prices rebounded above USD 40/bbl and after European Central Bank stimulus, which boosted the demand for riskier assets. Broad commodity price surge in the last week helped to improve sentiments towards commodity driven economies such as Brazil and Russia, whose currencies rallied sharply against USD by 4.67% and 3.11% respectively.
Brent crude oil price last week, sharply rose by 10.51% to 40.78 USD/bbl from 36.9 USD/bbl on the expectation that global glut will ease. International Energy Agency said that U.S. and non-OPEC crude output is beginning to fall quickly, while increase in Iranian supply had been less than dramatic. IEA further said that it believed non-OPEC output will fall by 750,000 barrels per day this year from previous forecast of 600,000 barrel per day. (
ECB in its recently concluded policy meeting, decided to cut its benchmark interest rate to a record-low of zero from 0.05% against the market expectation of no change. ECB also cut its deposit facility rate deeper into negative territory, to negative 0.4% and cut the marginal lending rate to 0.25% from 0.30%. In addition, the ECB boosted its quantitative easing program by 20 billion Euros per month to 80 billion Euros, starting in April.
However, in the early part of the week, market sentiment was weak and demand for safe heaven assets was high due to weak data from China, which showed that China’s exports sharply fell by 25.4% from a year earlier to USD 126.1 billion in the month of February and against the expectation of a decline of 12.5% while imports fell by 13.8% on yearly basis after 18.8% decline seen in the month of January.
Asian currencies were largely up against the USD last week. Australian Dollar appreciated by 1.69%, New Zealand Dollar depreciated by 0.91%, Japanese Yen depreciated by 0.11% against USD and depreciated by 1.35% against Euro, South Korean Won appreciated by 0.86%, Philippines Peso appreciated by 0.64%, Indonesian Rupiah appreciated by 0.44%, Indian Rupee appreciated by 0.06% against USD and depreciated by 1.22% against Euro, Chinese Yuan appreciated by 0.21%, Malaysian Ringgit appreciated by 0.6% and Thai Baht appreciated by 0.9%.
USD started the week on a slightly weaker note as expectations for an upcoming Fed rate hike were dampened after Federal Reserve Governor Lael Brainard said that while global financial markets have steadied in recent weeks, slowing growth in China and weak global demand still pose risks to the economy.
USD Index (DXY), which tracks the movement of the USD against six major currencies, declined by 1.2% on weekly basis closing at levels of 96.17. The sharp decline came largely after ECB policy decision on Thursday, which drove Euro higher after ECB president Mario Draghi after the policy decision, said that the central bank did not anticipate that it will be necessary to reduce interest rates further, but added that this could change.
USD found some support after U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 5th March declined by 18,000 to 259,000 from the previous week’s total of 277,000 against the expectation of a decline of 2,000 to 275,000.