Major trading currencies for September 2021
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BUSD
elow is the trading summaries for September, 2021.
The US dollar had drifted within recent ranges against its major peers after softer-than-expected U.S. inflation raised doubts about a taper of Federal Reserve stimulus this year.
While elevated inflation has kept pressure on policymakers, data showed the U.S. consumer price index, excluding the volatile food and energy components, edged up just 0.1 per cent last month.
The dollar remained under pressure in what might have been a delayed reaction to the latest inflation numbers.
Prospects of the US Fed tapering have likely been compounding the general risk-off tone seen in financial markets as of late. So, while sentiment may be rosy for now, with S&P500 futures pointing higher, investors are not quite yet in the clear.
A less-dovish outcome could rekindle risk aversion, undermining recent price action in financial markets.
The US dollar went on and hit its highest in for the month and pressed the euro towards major support levels, after the Federal Reserve set the stage for rate hikes next year -- far sooner than its developed market peers are expected to move.
Meanwhile, the US central bank left policy settings unchanged and, as expected, did not announce the beginning of asset purchase tapering.
The dollar rose broadly, and the yen also lost ground after Powell’s news conference and ended up falling 0.5 per cent for the session - its sharpest drop in more than three months.
Against this backdrop, Wall Street portrayed a rosy picture of the market sentiment while the S&P 500 Futures rose 0.10 per cent at the latest.
US yields climbed to their highest since the start of July in anticipation of tighter US monetary policy. Concerns that China’s second-largest developer Evergrande could default on its $305 billion of debt has overshadowed trade in recent weeks. But some of those contagion fears are lately receding.
US consumer confidence fell to a seven-month low in September as a relentless rise in COVID-19 cases deepened concerns about the economy’s near-term prospects, fitting in with expectations for a slowdown in growth in the third quarter.
The US dollar continued to trade near its highest levels of the year, after driving higher with US yields and benefiting from investor nervousness about the Federal Reserve starting to withdraw policy support just as global growth headwinds gather.
U.S. Treasury yields have surged with benchmark 10-year rates up 25 basis points in five sessions to 1.5548 per cent - as Fed tapering looms before the year’s end and as inflation starts to look stickier than first thought.
The dollar kept strengthening on the back of growth-related concerns and speculation the US Federal Reserve will soon start trimming its massive stimulus programmes.
US Federal Reserve chief Jerome
Powell noted that the Central Bank is quite close to achieving its goals on employment, which will allow policymakers to start retrieving financial support.
He reiterated that inflation spikes are mostly due to supply constraints meeting very strong demand and that he expects it to be temporal.
AUD
A measure of Australian business conditions showed a welcome improvement in August as sales and profits weather coronavirus lockdowns in parts of the country, offering hope of a speedy recovery once restrictions ease.
Traders awaited the speech of the Reserve Bank of Australia, Governor Philip Lowe, who spoke on the impact of the Delta variant on the economy.
Meanwhile, Australia’s unemployment rate has dropped again to 4.5 per cent in August from 4.6 per cent in July.
However, the steep fall in hours worked last month paints a more accurate picture of the economic pain resulting from COVID lockdowns in Australia.
Markets were sinking leading into the announcement, with risk-sensitive currencies falling alongside equities.
Aussie and Kiwi dollars both shot higher by around 0.5 per cent immediately following the news.
Australia saw flash purchasing managers’ index data cross the wires this week.
The September preliminary services PMI rose to 44.9 from 42.9 in August.
PMI for the manufacturing sector accompanied the data, with the index climbing to 57.3 While the services sector remains in contractionary territory, the slower pace of contraction hints that a recovery in the sector may be underway.
The preliminary readings of Australia’s Retail Sales for August improved from -2.7 per cent prior to -1.7 per cent. However, China’s Industrial Profits eased to 10.1 per cent YoY versus 16.4 per cent expected. In addition to mixed data from Australia and China, the sluggish mood in the market also contributed to the Aussie currency’s latest weakness.
NZD
New Zealand’s economy grew at a much faster pace than expected in the second quarter.
Their GDP surged 2.8 per cent in the three months through to June beating the 1.3 per cent forecast. Their growth surge follows a drop in unemployment in the second quarter to 4.0 per cent and a rise in annual inflation to 3.3 per cent, above the central bank’s 1 to 3 per cent target range.
This perhaps reinforces the view that the Reserve Bank of New Zealand may raise interest rates despite their recent coronavirus outbreak.
The New Zealand dollar also sank after the central bank’s assistant governor poured cold water on bets for a 50-basis point rate hike next month.
Their Trade Balance dropped to $-2144 million MoM while the YoY figures rose to $-2.94 billion during the stated month.
Further details signal that the Exports dropped while Imports rose.
Although the Reserve Bank of New Zealand (RBNZ) policymakers have already signalled their wish to rate hike, highlight the next week’s monetary policy meeting for the NZD/ USD traders, the latest COVID fears may probe the hawks.
JPY
Japan’s core machinery orders rose in July after a dip the previous month, a sign corporate spending is perking up despite the wider hit to the economy from the pandemic.
The Bank of Japan kept monetary policy steady but offered a gloomier view on exports and output, reinforcing expectations the bank will maintain its massive stimulus even as major counterparts eye a withdrawal of crisis-mode support.
The Japanese yen, which is sensitive to U.S. yields as higher rates can draw flows from Japan, has fallen about 2 per cent in five sessions and at 111.57 per dollar is not far from hitting its lowest level since February 2020.
EUR and GBP
Unfortunately for the British pound, the US dollar strength added to their woes and sent the cable down 0.39 per cent.
Already on shaky ground after a poor retail sale reading domestically, the stronger greenback sent the sterling even lower.
Brexit woes continued to pressurise the sterling prospects.
In the latest development, four rival unionist parties in Northern Ireland have formed an alliance to fight the Brexit protocol.
The move augmented the already negative impact of the higher UK gas prices and rising inflation fears.
Meanwhile, the European Central Bank President reaffirmed that the current accommodative policy stance ensures a safe exit from the coronavirus pandemic.
The comments gained another vote of confidence after ECB Governing Council member and Bank of France Head said that the inflation forecast of below 2 per cent in 2023 justifies the current ultra-loose monetary policy.
Furthermore, the GFK Consumer Climate indicator in Germany jumped 0.3 per cent heading into October.
As for now, traders are waiting for the Eurozone Consumer Confidence data, ECB’s members’ speeches, and the Bank of England Consumer Credit to gauge market sentiment data.