The Dollar in Demand Despite Oil Slump

The U.S. dollar was up on Tuesday, as investors choose the safe haven amid a historical slide in oil prices.

WTI futures for May delivery fell into negative for the first time since forex trading began during the previous session. Investors and traders desperately sought to avoid delivery considering the shortage of storage space for the current glut of oil.

The USD Index stood at 100.278, up 0.2% while GBP/USD fell 0.2% to 1.2414. USD/JPY down 0.2% to 107.42.

Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors said oil is off its lows. But a lot of companies are going suffer and start to fail.

He also said if share prices have a pullback, the USD could see some gains as a safe haven.

The euro is in focus ahead of Thursday’s virtual meeting of the European leaders. This will be to discuss funding of the economic recovery in the region from the damage done by COVID-19. Meanwhile, EUR/USD fell 0.2% to 1.0841 in the FX market.

European Leaders

German Chancellor Angela Merkel will face pressure to agree to help finance the recovery. It will be through the issuance of joint debt, a subject which has provoked heated discussions in the Eurogroup meeting.

On Monday the Spanish government set out its plans to create a 1.5 trillion euro or $1.63 trillion recovery fund. It will be financed through perpetual debt, backed by the EU budget, to aid countries worst-hit by the coronavirus crisis.

Some reports have indicated that Merkel may be ready to accept this plan, however, the bond markets aren’t buying it. They aren’t buying it with spreads between the low-risk German debt and that of the Italian and Spanish equivalents. The two countries had the most struggle during this crisis, at one-month highs.

The Dollar Holds onto its Crown

Analysts at Danske Bank said COVID-19 proved to be an unpleasant reminder for the single currency of a key factor.  There is a hesitant European crisis response and a continued lack of a risk-sharing mechanism such as automatic fiscal transfers.

It means that the eurozone is exposed when debt sustainability in any one country is at risk.

Also of note is the two week high for dollar/yuan pair. This was following the decision of the Chinese central bank to cut its benchmark lending rate on Monday. It is for the second time this year, to reduce borrowing costs for companies and prop up the coronavirus-hit economy.

The USD/CNY pair gained 0.2% to 7.0829.

Adding to the downside for the yuan was news of the first new cases of coronavirus in northwestern Shaanxi.

The NZD/USD pair lost 0.68% to 0.5994 while the AUD/USD pair lost 0.49% to 0.6304. These Antipodean currencies reported losses as investors’ risk sentiment soured after the oil slump.

These two currencies are closely tied to commodities. Therefore they are sensitive to commodities price movements.

In more forex news, Asian stocks slid in response to the news on negative oil prices. The dollar/yen pair was down 0.04% to 107.56.