April was a month to remember. The devastating economic consequences of government-imposed lockdowns across many countries, due to the coronavirus (COVID-19), seeped deeper into the activity data. Record lows were seen in PMIs, record highs in the number of newly unemployed, and Q1 GDP numbers were sobering to put it mildly. Oil prices continued on their eye-watering plunge, and some of the futures prices even went negative.
The EUR was down just 0.7% versus the USD in April, but it was the weakest G10 currency in the month. EUR-USD also oscillated with risk sentiment and broad USD moves. EU leaders and finance ministers struggled to strike a significant fiscal deal, and Eurozone data was dragged into the doldrums by the ongoing lockdowns.
On 8 April, the Eurogroup failed to reach a deal on a joint fiscal package in response to the epidemic, which saw the EUR end the day 0.3% weaker against the USD. A deal was eventually reached, and on 23 April the European Council endorsed a EUR540bn fiscal package agreed by the Eurogroup earlier in the month. This deal failed to surprise the FX market. It was also announced that the Eurogroup will work towards a ‘Recovery Fund’, although details on the size of the fund were lacking.
On the same day, Eurozone PMIs alarmed the market with record lows, including the Eurozone composite PMI dropping to 13.5 from 29.7. EUR-USD declined 0.4%, as it was revealed just how vulnerable economies could be to the pandemic. On 30 April, Eurozone GDP followed suit, contracting by 3.8% QoQ (non-annualised) in the first quarter of 2020. France – down 5.8% QoQ – and Spain – down 5.2% – were notable disappointments on a country basis. Data out of Germany also showed the number of unemployed increasing by 373k in April – another disheartening record. On the final day of the month, the ECB announced more generous terms for its targeted longer-term refinancing operations (TLTROs) and a new bank funding facility, but it did not cut rates or increase its outright asset purchases. The EUR ended the day modestly lower.
The AUD was the G10 outperformer in April and went on a blistering 6.2% rally against the USD. Much of this AUD strength came as the FX market renewed its risk-on taste, with equities also rallying strongly. From 3 April to 14 April, AUD-USD climbed 7.4%, and, after a brief blip, another 3% from 22 April to the end of the month. Little attention was paid to S&P cutting its outlook on Australia’s AAA rating from “stable” to “negative” on 8 April, as debt concerns grew. On 15 April, risk aversion that was prompted by another leg lower in oil prices saw the AUD retrace 1.9% against the USD. Risk-on sentiment soon resumed, with media reports of promising drug trials against the virus helping the AUD rally against the USD as the month drew to a close.