Week ahead: 5 currencies to watch in the coming week

The US dollar regained its crown this week as investors reacted to increased chances of a second wave of the coronavirus pandemic. The US dollar indexrose by almost 0.20% while the euro index was relatively unchanged. The Australian dollar declined by more than 1% while crude oil currencies wavered. Let us look at the key currencies to watch in the coming week.

Australian dollar

The Australian dollar has been among the best-performing currencies in the past month. That has happened because of the emerging Chinese economy and the fact that Australia has almost eradicated coronavirus.

In the coming week, the currency will react to the Chinese industrial production, retail sales, unemployment rate, and house price data that will be released on Monday. The RBA will release minutes of the previous meeting while the bureau of statistics will release the employment data on Thursday and retail sales on Friday. All these numbers will provide a picture about whether the Australian economy is indeed recovering.

Japanese yen

The Japanese yen has been on a sharp upward trend in the past few weeks. The currency gained by more than 2.05% this week mostly because of the rising risks of a second wave and the emerging risks in the peninsula.

Next week, the currency will be in the spotlight because of the Bank of Japan (BOJ), which will deliver its rates decision on Tuesday. Analysts polled by Bloomberg expect that the bank will leave interest rates unchanged at -0.10% and maintain its open-ended quantitative easing program. Besides, they expect the bank will maintain its yield curve control program.

Still, analysts will focus on Kuroda’s language about the future. Perhaps, he could hint at further rate cuts in a bid to weaken the yen. As an export-oriented country, Japan and the BOJ favour a weaker yen because it makes the goods cheaper to foreign buyers.

Swiss franc

The Swiss franc has been relatively strong in the recent past. While it pared some of its gains this week, it still gained by more than 1% against the USD because of the emerging risks. The coming week will be important for the franc because of key economic data from Switzerland and the interest rates decision by the Swiss National Bank.

As with the BOJ, the SNB dislikes the stronger franc because it disadvantages its exports. As such, the bank could decide to intervene in a bid to weaken the currency. It could achieve this by surprising the market by pushing interest rates further negative and announcing a big quantitative easing program. It may also take the nuclear option and reinstate the currency peg it ended in 2015.

In addition to the SNB decision, the statistics office will release the PPI data on Monday and trade balance on Thursday. Also, SECO will release the economic forecasts on Tuesday.

British pound

The British pound dropped by about 1.25% this week in part due to the weaker US dollar. The currency’s performance has surprised investors because of the rising risks from the UK. Recent economic datahave been worrying while risks of a no-deal Brexit remain.

The currency will move this week because of the developments on Brexit, key economic data, and the Bank of England. On Brexit, Boris Johnson will hold a virtual meeting with Ursula von der Leyen on Monday. But the possibility of a transition period extension remains low.

On economic data, the Office of National Statistics (ONS) will release the country’s April employment data on Tuesday, inflation numbers on Wednesday, and retail sales on Friday.

The Bank of England will deliver its rates decision on Thursday. Analysts polled by Bloomberg expect the bank to leave interest rates unchanged and a £200 billion addition to the existing quantitative easing program. In a recent note, analysts at Bank of America said that they expect the bank to cut rates, implement yield curve control, and improve the term loan package in the August meeting.

Other currencies to watch

The other currencies to watch in the coming week will be the Norwegian krone, Russian rouble, and Brazilian real. The respective countries will deliver their rates decisions. Others to watch will be the Canadian dollar, South African rand, and the Hong Kong dollar.