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US Dollar cedes some gains but oil collapse likely to support safe-havens

Published 21/04/2020, 10:27 am
© Reuters.
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* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

* Historic collapse in oil futures

* Dollar to remain supported in long term

* FX markets adjust to shifts in global economic risks

By Stanley White

TOKYO, April 21 (Reuters) - The dollar gave up some gains against the currencies of oil producers after U.S. crude futures pared some of their massive losses in Asia, but the historic collapse in energy demand is likely to keep safe-haven assets well supported.

U.S. crude oil futures plunged into negative pricing for the first time ever on Monday, dragged by a supply glut and sagging demand due to the coronavirus pandemic, though they managed to scrape back into positive territory early Tuesday.

"Oil is off its lows, but a lot of companies are going to get hit and companies could start to fail," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors in Sydney.

"If share prices have a pullback, the dollar could see some gains as a safe haven. The only thing that's capping the dollar is the Federal Reserve has done more quantitative easing than anyone else."

Factory closures and travel restrictions enforced to slow the pace of new infections have triggered a collapse in oil prices, which is drawing money from commodity currencies and other risk asset to the safety of dollar-denominated assets.

The U.S. dollar edged down slightly against the Canadian dollar CAD=EBS to C$1.4123 after hitting a two-week high on Monday.

The greenback fell 0.17% to 23.990 Mexican pesos MXN=D3 following a 1.3% jump on Monday.

Against the Norwegian crown NOK= , the U.S. currency held steady at 10.4370 after gaining 1.2% on Monday.

The euro held steady as caution set in before data on German economic sentiment later Tuesday and a meeting of European Union officials on Thursday to discuss the bloc's response to the economic chaos caused by the coronavirus pandemic.

The New Zealand dollar was poised to extend gains as investors continue to cheer the country's decision to ease next week ease some of the world's strictest lockdown measures taken to stop the spread of the novel virus. West Texas Intermediate crude for May delivery CLc1 turned positive and traded at more than $2 per barrel early in Asia, off a low of -$40 hit in New York trading. The May contract expires on Tuesday. O/R

The June contract CLc2 , which is more actively traded, was up 4.8% at $21.41 a barrel.

Investors have been unwinding long positions in front-month oil futures because U.S. crude storage facilities are nearly at capacity.

Energy prices are also falling because output cuts agreed last week by major oil producers have not offset a collapse in demand caused by the coronavirus pandemic.

The dollar edged up slightly to 107.70 yen JPY=EBS and held steady at 0.9682 Swiss francs CHF=EBS as safe-haven flows continued to support the U.S. currency.

The euro EUR=EBS was quoted at $1.0863. Against the pound, the common currency was little changed at 87.31 pence EURGBP=D3 .

Data due later on Tuesday is expected to show German investor sentiment remained weak in April because of the coronavirus pandemic.

Members of the EU are struggling to reach consensus on how to financially support countries hardest hit but the virus, such as Italy and Spain. the EU fails to reach an agreement this week, there could be more downside risks for the euro, some analysts say.

As coronavirus infections show tentative signs of peaking in some places, countries are struggling to decide how to re-open their economies for business.

The New Zealand dollar NZD=D3 traded at $0.6040 on Tuesday, holding onto the previous day's gains. The Australian dollar AUD=D3 edged up to $0.6346.

New Zealand will next week ease some of the world's strictest lockdown measures taken to tackle the novel coronavirus pandemic, which will allow hundreds of thousands of people to return to work.

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