SMATS FX is proud to provide our weekly analysis of currency markets and exchange rates.
- Over the past week the USD strengthened against 18 of the top 20 currencies, with the largest gains being seen against the TRY and the AUD. The only two currencies against which is weakened was MXN (-0.1%) and CNY (-0.08%), thus overall, we have seen a generally positive market sentiment flow to the USD.
- On the data front, the past week did not offer much to focus on. We had US Initial jobless claims, which were slightly higher than expected, moving to 2.783M compared to 2.744M expected. On Friday we saw us Producer Price Index move on a MoM basis to 0.6%, it was expected at 0.5%, thus a slightly improved sentiment.
- Coming up this week we have two main events, the US Inflation data on Tuesday, expected to remain stable at 0.3% (MoM) and US Retail sales on Thursday, expected to slow its decline to -0.7% from -1.1% (MoM). With these two events, any deviation from the anticipated movement could lead to sudden fluctuations in the USD valuation.
- The pound lost some ground in the early rounds of last week, before experiencing a sizeable correction. The Cable (GBP/USD) touched a low of 1.3726, after kicking off at 1.3863 on Monday. However, after a bout of USD weakness, the GBP/USD closed the week at 1.3839, just 0.19% lower for the week.
- Last week, The United Kingdom released their Balance of Trade for July. During the month, the regions’ trade deficit widened from £2.5 billion to £3.1 billion. Imports increased by 1.1%, recording a 7-month high, while exports declined by 0.1%.
- Both Industrial Production and Manufacturing Production figures for the month of July were also released. Industrial production ticked upwards by 3.8%, year-on-year, while manufacturing production rose by 6% over the last 12 month.
- This week is rather heavy on the data front, coming out of the United Kingdom. The Unemployment Rate for July is due to be released tomorrow, after the unemployment reading of 4.7% for June.
- Furthermore, the U.K’s August Inflation rate will come due on Wednesday. Year-on-year inflation is forecasted to rise towards 2.7%, after the 2% figure was recorded last month. Retail Sales for August are also scheduled to be reported on Friday, after the previous month-on-month decline of 2.5%.
- This week saw the EUR trade mainly flat against most majors until Thursday when we the EEA currency give up significant ground. The currency showed strong gains during the first half of the week (EUR/GBP 0.857-0.859 from Monday to Tuesday) stabilized and ranged on Wednesday and then weakened for the rest of the week closing at 0.852 against the Pound Sterling.
- Caution was the name of the game during the earlier part of the week as investors saw stronger PMI and economic sentiment being released from the EEA and Germany (The block’s largest economy). The EUR ranged and lacked direction on Wednesday as markets awaited the ECB press announcement on Thursday.
- Interest rates were left unchanged on Thursday with the ECB announcing a reduction in the PEPP program. However, Lagarde (ECB president) stated that this does not signal a tapering of QE and that the APP program is still intact. Although the reduction was expected, the continued dovish stance came as bit of a surprised and was the main driver of the EUR weakness for the rest of the week.
- Last week, during their September meeting, The Reserve Bank of Australia made the decision to hold their cash rate at the ultra-low level of 0.1%. The Australian central bank also confirmed their plans to reduce their purchases of government bonds, from $5 billion per week to $4 billion per week.
- The RBA also indicated that they expect Q3 joblessness to rise and Q3 GDP to decline. However, they re-iterated their belief in the economic revival, which is likely to coincide with the rise in total vaccinations and the easing of lockdown restrictions.
- The Aussie dollar faired rather poorly in the markets last week, with GBP/AUD appreciating by 1.21%. After opening on Monday at 1.8585, the GBP/AUD pair closed off the week around the 1.8810 level.
- Australia’s Unemployment Rate for August will be released this week, after the 4.6% reading in July. We will also hear more about the state of Australian economic activity, in the form of NAB Business Confidence and Westpac Consumer Confidence
- The NZD has seen mixed performance over the past week, gaining against 10 of the top 20 currencies and weakening against the same number. The largest gains were seen against the AUD (0.75%) and the TRY (1.77%), with the largest depreciation seen against the USD (-0.41%) and the MXN (-0.58%). Mixed performance as New Zealand emerges from their most recent lockdown.
- Data wise, there hasn’t been much action out of NZ, with the main event being the country emerging from another lockdown.
- On Wednesday, we can expect the release of the current account data pertaining to the second quarter. The current account is forecast to switch from a deficit of NZ$-2.895B recorded in the first quarter to a surplus of NZ$1.1B. The GDP data relating to the second quarter is to be released on Thursday. We can expect an increase of 1.4% compared to the previous quarter. Later this week, on Friday, the Business NZ Performance of Manufacturing index is to be released. The index is expected to drop to 51 in August from July’s 62.6.
- The Rand has reclaimed its position as the best performing emerging market currency this year and has strengthened against the top 10 currencies this last week. Most noticeably against the AUD with 1.35%
- Last week saw South Africa's current account balance widen to R343 billion for the second quarter, the largest surplus ever. This an indicator of an economy's health. It is the difference between credits and debits of imports and payments. The current account balance, in monetary terms, was R261 billion in the first quarter. As a ratio of GDP, the surplus widened from 4.3% in the first quarter to 5.6% in the second quarter. The countries Trade surplus also increased in the second quarter to a record high of R614 Billion, but this is due to increase prices and not volume.
- An International monetary fund loan and additional drawings rights resulted in the central bank holding a lot of dollars, which in turn must be used to purchase Rands on the forward market, which leaves lenders with a surplus of dollars. As a result, borrowing ZAR against the Dollar for one year on the Swap market climbed to 105 basis points for the month of September. This is far above the average Bps of 35, creating an expensive environment when it comes to long dollar positions against the ZAR.
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