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Weekly market update 14 November – Dollar extended its rally, RBA’s monetary policy meeting minutes in focus next week

Weekly market update 14 November – Dollar extended its rally, RBA’s monetary policy meeting minutes in focus next week

1. The Dollar pared gains to close the week at around 94.3 after the first week of November, following a stronger-than-expected jobs data performance from the U.S. jobs market that supported investors’ risk appetite. The U.S. economy added another 531,000 jobs in October, exceeding market expectations of 450,000 new jobs added, pushing the unemployment rate to a new low of 4.6% since the COVID-19 pandemic began. At the same time, major U.S. stock indexes closed at record highs for the week, with the S&P 500 gaining 2%, the Dow Jones rising by 1.4%, and the NASDAQ up 3.2%; a reflection of investors’ optimism for a global economic recovery which was momentarily buoyed by strong jobs data and news of a new Pfizer antiviral pill that reportedly reduces the risk of severe COVID-19 infections by 89%. Earlier in the week, the U.S Federal Reserve announced plans to withdraw stimulus and emphasized that there was no rush to raise interest rates yet, citing current inflationary pressures as transitory. Going forward, as the U.S. Federal Reserve continues with its tapering plans, the greenback is projected to maintain its bullish momentum in the coming weeks as it is traditionally viewed as a safe-haven asset. Investors will be watching the statements made by Fed Chair Jerome Powell in the upcoming week, as well as CPI data as a gauge on inflation in the U.S.

2. The Euro fell to $1.15 against the greenback at the start of November, touching the lowest level since July 2020, following the better than expected US jobs data, which could trigger further tapering from the Federal Reserve in the coming months. This was a stark contrast to ECB President Lagarde’s dovish stance where she mentioned that it was “rather unlikely” for the ECB to hike rates in 2022 despite the current inflation surge, dashing investors’ expectations for a 10 basis point deposit rate hike this year. On the data front, IHS Markit Eurozone composite PMI was revised slightly lower to 54.2 in October of 2021 from a preliminary of 54.3, pointing to the slowest growth in the private sector in six months. Eurozone unemployment rate also edged down to 7.4%, the lowest level since April 2020, in line with market expectations. The inflation rate jumped to a 13 year high while GDP painted a rather mixed picture. Elsewhere, the British pound also dipped lower towards $1.34 in early November, hovering around the lowest level since the end of September after the Bank of England left monetary policy unchanged, a move that defied market expectations as policymakers have been echoing a hawkish tone, with interest rates hike “over coming months” if the economy performed up to standard. FTSE 100 hit the highest last Friday, driven by gains in energy stocks as oil prices rose for the second day while the yield on UK 10-year government bonds plummeted below 1% at the start of November. Looking forward, investors will be looking at GDP data released next Thursday for further insights on the progress of the economic recovery.

3. The Australian Dollar weakened past 0.7400 against the US Dollar on Friday, as the RBA reaffirmed its dovish stance in its quarterly economic update. Australian 10-year yield settled around 1.8% after pushing to 2% in late October as bond traders and futures markets eased some bets on a much earlier rise in interest rates. The Reserve Bank of Australia said in its quarterly statement on monetary policy that a 2024 interest rate hike is still the central case but a 2023 interest rate hike is plausible if inflation and wage growth exceed current expectations. Kiwi also weakened past 0.71 against the dollar as investors widely expected RBNZ to raise interest rates by at least 25 basis points in its November 24th policy meeting amid decade-high inflation and record low unemployment. A recent pullback in oil prices coupled with a strong dollar caused the Loonie to trade at 1.24 USD, not far from a 3 week low of 1.248. Gold prices held firm above $1790 an ounce on Friday as the dollar-denominated assets are on course for a weekly gain after a succession of central banks defied expectations of a hawkish pivot this week.