Weekly market update 10 September – Dollar outperformed its peers, Aussie dipped after RBA’s dovish stance
Weekly market update 10 September – Dollar outperformed its peers, Aussie dipped after RBA’s dovish stance
1. The US Dollar strengthened against all its G7 peers this week after the initial jobless claims dropped to 310 thousand, the lowest level in nearly 18 months. Producer prices were up 0.7% month on month in August, surpassing market forecasts of 0.6%, which could put some pressure on the Fed to scale back on its accommodative monetary policy. Meanwhile, the US stock market extended its decline as concerns over slower economic growth and the spread of the coronavirus delta variant accelerated the selloff, with Dow Jones and S&P 500 recording their biggest weekly declines since June. While the call between President Biden and Xi Jinping raised hopes of easing tensions between both nations, along with President Joe Biden’s broad plan to boost COVID-19 vaccination rates in the US, it did little to nudge investors’ risk appetite. In the coming week, investors will turn their attention to the consumer price report for signs of growing inflationary pressure which could affect the Fed’s tapering timeline. Meanwhile, Retail and industrial production numbers for August should reflect the slower pace of growth as the country grapples with the delta variant spread.
2. The Euro pared recent gains, after the European Central Bank (ECB) announced a shift to a “moderately lower pace” in its emergency purchase programme to tackle the effects of the pandemic, but did not signal an end to its bond-buying programme. ECB President Christine Lagarde was quick to note that the slowdown in the buyback programme should not be seen as tapering. Instead, investors will be looking towards the December meeting for the ECB for a clearer outlook on when emergency relief is expected to end. Moving ahead, investors will be looking out for monthly CPI and core CPI data for an idea of the state of inflation. Elsewhere, the Pound rallied higher after Bank of England (BOE) governor Andrew Bailey said that raising interest rates would become necessary over the next 2-3 years, regardless of whether Britain’s economic recovery can pick up its pace post-pandemic. Meanwhile, the U.K. parliament showed support for Prime Minister Boris Johnson’s plans to raise taxes in order to support social care costs and the NHS. In the coming week, notable publications include inflation report, unemployment and wage growth, and retail trade data.
3. The Australian dollar nosedived after the Reserve Bank of Australia (RBA) announced it would stick to its plans for tapering, but extended its bond-buying programme to mid-February as the country continues to reel from the effects of its lockdowns. Going forward, investors will be looking at the unemployment rate data, as well as a speech by RBA Governor Lowe to get an idea of the central bank’s stance on its monetary policy. The Kiwi, on the other hand, managed to rally to above $0.71, as strict lockdown policies were relaxed, giving the Reserve Bank of New Zealand (RBNZ) more room to explore tapering as an option. The Loonie also showed a similar trend, rallying to $1.26 as upbeat unemployment data fuelled expectations amongst investors for the Bank of Canada to introduce tapering soon. Meanwhile, Gold prices closed below $1,800 a week, at $1,788, hit by a strengthening dollar which the asset is denominated in.
