SW Weekly Market Update 1

Weekly Market Update 04 September – Dollar weakened further after Non-farm Payrolls disappoint while commodity currencies rallied

Weekly Market Update 04 September – Dollar weakened further after Non-farm Payrolls disappoint while commodity currencies rallied

1. The Dollar Index weakened further this week, following the poor performance of the U.S. non-farm payrolls. Analysts estimated an increase of 750,000, but actual data showed that only 235,000 jobs were added in August, the lowest in 7 months and well below the forecast. This comes after Federal Reserve Chairman Jerome Powell held off on giving an exact timeline on interest rates hikes, saying that there is still “much ground to cover” before the economy hits full employment. Elsewhere, U.S. average hourly earnings rose by 0.6% to $30.73, which was much stronger than expected and indicates rising demand for labor and possible inflationary pressure in the U.S. Going forward, remarks from members of the Federal Reserve would be closely watched by investors for guidance on the direction of the monetary policy. We could see the dollar continue to underperform in the short term following the disappointing jobs data which validated the Fed’s view that the recovery is far from pre-pandemic levels, thereby reducing the pressure for the Fed to act.

2. Unemployment rate in the Euro area edged to 7.6% in July 2021, matching market forecasts, and producer prices rose by 2.3% in July 2021. Euro hit an over four-week high of $1.188 in early September as signs are emerging that ECB might start limiting the emergency bond purchases. In the upcoming ECB monetary policy meeting, investors are expecting rates to remain unchanged while keeping a close watch on discussions over the emergency bond-buying program. Meanwhile, the weak US jobs report also buoyed demand for the Euro as an alternative. Other notable publications include the GDP data released on Tuesday next week. Elsewhere, Pound also rallied to a three-week high on Friday as investors dumped the dollar after a weaker-than-expected jobs report. The Bank of England also signaled modest tightening of policy over the next two years was likely to be necessary if the economy continues to improve.

3. The Australian dollar extended its gains to trade above $0.745 in early September, supported by upbeat economic data, with exports from Australia jumping 5% month on month in July, bringing a record high trade surplus, amid a quicker coronavirus vaccine rollout. Next week, investors will turn their attention to the RBA’s monetary policy meeting on Tuesday where interest rates are likely to remain unchanged. Elsewhere, Kiwi also consolidated gains to trade above $0.71, the strongest level since mid-July. The gains in Kiwi reflected investors’ expectations that RBNZ would hike rates by 25 basis points to 0.5% at its October meeting. Loonie also showed similar trends to the Aussie and Kiwi as the Canadian dollar is backed by a 3-day rally in oil prices and also by the hopes that Bank Of Canada will begin hiking interest rates before the Federal Reserve. Meanwhile, Gold prices rallied higher, as the dollar-denominated asset benefitted from a weaker Dollar.

Salzworth Asset Management