2023 August Outlook for G7 Currencies
2023 August Outlook for G7 Currencies
Dollar
Fundamental perspective:
With the narrative of a soft-landing, the dollar surged against its G10 currency peers to close above 104 and was cushioned despite lower-than-expected figures for August CPI print, reporting at 3.2% growth, and also with Non-Farm Payrolls coming in at 187K employment. Furthermore, rise in Producer Price Index, retail sales, increase in average hourly earnings put further pressure for the Fed to persist with its monetary tightening policy. However, in recent speech made by Fed Chair Powell during the Jackson Hole event, the FOMC reiterates its hawkish, yet data-dependent, stance as inflation remains above target. Currently, markets are pricing in an 80% probability for a rate pause in September’s meeting, and a 47% chance of a 25bps hike in November, meeting to reach a terminal rate of 5.75%.
Technical perspective (USDJPY):
On the daily timeframe, price has bullish order flow, forming higher lows and higher highs along an ascending channel. A break of upside confirmation level at 147.20 could provide the bullish acceleration towards the resistance zone at 150.20. Price is hovering above ichimoku cloud, supporting our bullish bias.
| S1 | S2 | R1 | R2 |
| 147.20 | 144.50 | 150.20 |
– |
Loonie
Fundamental perspective:
The loonie demonstrated modest growth during the month of August but experienced a depreciation of up to 3.6% against the US Dollar, concluding the month at a rate of 1.36. This subdued performance of the currency can be largely attributed to an unexpected decline in employment figures, with a decrease of 6.4k jobs instead of the anticipated 24.6k increase. Additionally, Canada’s oil prices retreated to $80/b from July’s elevated levels, compounding the currency’s challenges. The convergence of factors, including a deteriorating trade balance and decreased core retail sales, contributed to the overall decline of the CAD. Economists are now predicting a significant contraction in Canada’s second-quarter GDP growth based on this confluence of factors.
Technical perspective:
On the daily timeframe, price has recently rejected off from a resistance zone and is currently testing the resistance zone at 1.3650. A break above this upside confirmation level at 1.3650 could provide a bullish acceleration towards our next resistance zone at 1.3850. Price is hovering above ichimoku cloud, supporting our bullish bias.
| S1 | S2 | R1 | R2 |
| 1.3500 | 1.3380 | 1.3650 |
1.3850 |
Kiwi
Fundamental perspective:
The kiwi followed a similar trajectory to the CAD and AUD in August. The currency’s decline was influenced by an elevated unemployment rate, diminished PPI q/q input and output figures, and a concerning trade balance of -1,107 million compared to the previous month’s -111 million. The Reserve Bank of New Zealand (RBNZ) chose to maintain the Official Cash Rate (OCR) at 5.5%, while signalling the necessity of future rate hikes to address short-term inflation concerns. Based on its statement, the RBNZ anticipates the OCR to remain above 5.5% until 2025.
Technical perspective:
On the H4 timeframe, price is consolidated between 0.5890 and 0.6020. However, a recent strong rejection from 0.6020 is observed and we expect a pullback to the resistance zone at 0.5950 could provide the bearish acceleration towards the next key support zone at 0.5890.
| S1 | S2 | R1 | R2 |
| 0.5950 | 0.5890 | 0.6020 | – |
