Weekly market update 01 October – Dollar extended its gains, US NonFarm Payrolls, RBA and RBNZ monetary policy meeting in focus next week

Weekly market update 01 October – Dollar extended its gains, US NonFarm Payrolls, RBA and RBNZ monetary policy meeting in focus next week

1. The US Dollar extended its gains to reach the highest level in nearly a year, boosted by expectations that the Fed could begin tapering in November and hiking rates next year. Rising treasury yields, upbeat economic data, Evergrande’s debt crisis, and optimism over the passage of an infrastructure bill also buoyed demand for the safe-haven currency. On the economic data front, the ISM Manufacturing PMI advanced to a 4-month high of 61.1 in September, ahead of market expectations of 59.6. Meanwhile, Personal spending recorded a 0.8% growth in August, up from a 0.1% decline in July and ahead of 0.6% growth estimates, signaling a pickup in the US’s economic recovery following a summer slowdown caused by the delta variant. Elsewhere, the Senate and the House passed a short-term appropriations bill that would keep the government funded through 3 December while the House Democrats delayed plans to vote on a $1 trillion infrastructure bill as no agreement has been reached. In the coming week, investors will keep a close watch on the jobs report for more insights on the pace of the labor market recovery, especially after August’s numbers fell shy of expectations.

2. Across the Atlantic, the Euro extended its decline against the greenback, reaching its weakest level since July 2020 as ECB reaffirms their dovish stance in maintaining the current accommodative monetary policy, along with a hawkish tilt by the Fed, raising expectations for a rate hike next year. In the recent ECB Forum on Central Banking, Christine Lagarde addressed concerns of rising inflationary pressures, noting that they are transitory with the reopening of the economy as wage growth remains subdued. On the data front, Germany’s retail sales missed market expectations of a 1.5% growth and remained well below pre-pandemic levels while Germany Manufacturing PMI pointed to the slowest growth in factory activity in 8 months amid higher material costs and production bottlenecks. IHS Markit Eurozone Manufacturing PMI latest reading pointed to another month of strong improvement in operating conditions, standing at 58.6 in September, albeit a notable step down from 61.4 seen in August and the lowest since February; a sign that the path of economic recovery to pre-pandemic levels is a long stretch. Following its counterpart, Sterling edged lower for the week after the economic data hinted at signs of slowing growth amid rising material costs, labor shortages, supply chain disruptions, and slower order growth. UK Manufacturing PMI signaled the weakest pace of expansion in the sector since February, standing at a seven-month low.

3. Elsewhere, the Canadian dollar edged higher, supported by rising oil prices. Currently, WTI crude oil is trading above $75 per barrel, fuelled by tight supplies and strong demand, amid a global energy crunch and soaring natural gas prices. Coming Monday, OPEC will be meeting to discuss whether to boost production by 400,000 BPD or more in November and December. On the data front, Canada’s GDP shrank 0.1% in July following a 0.6% increase in June, 2% shy of the pre-pandemic levels of February 2020. In the coming week, investors will turn their attention to RBA and RBNZ’s monetary policy meetings, with a potential 25 bps interest rates hike by the RBNZ officials while RBA is expected to keep interest rates unchanged at 0.10%.