SMATS FX Weekly Market Report | Monday 15 March 2021

USD

The dollar started last week with continued momentum, after the previous selloff and spike in bond yields helped to drive the dollar forward. However, a mid-week yield correction saw the greenback lose some of the gains that it had mustered over the previous weeks trade. Yields spiked back up on Friday, causing the dollar to firm. Nevertheless, the Dollar Index (DXY) ended the week in the red, down 0.32%

February’s retail sales tomorrow will provide more insight into the recovery of the US economy and current levels of spending. The Stimulus Bill, which has now been successfully passed through both the House and the Senate, will be the main talking point in the upcoming week, as the Democrats look to release the flood of funds into the market. FOMC predictions and the Fed press conference on Wednesday is likely to draw market attention, and will afford Jerome Powell another opportunity to reinforce his dovish stance on monetary policy. Interest rates are expected to remain at 0.25%.

Influences on HKD, SGD & AED

After a sub-optimal previous week in the markets, exotic currencies regained some of their past losses in the mid-week trade. Moving predominantly on US data, HKD, SGD and AED benefitted from manageable CPI. However, recent concerns over rising inflationary pressure has limited the upside for USD/HKD and USD/SGD pairs. Potential for a future rise in interest rates has seen steepening of the US government bond yield curve, with the 30-year bond yields rising to yearly highs.

EUR

Last week, the Euro was rocked by the ECB’S announcement of their emergency bond repurchase programme, which aims to limit rising Euro bond yields. The Euro struggled along throughout the week, hampered by the news of additional Quantitative Easing measures. Combined with the slow vaccination rollout, Euro upside remains limited in the short term.

This week will provide additional insight into the inflationary climate in the euro zone, with Germany reporting their February Wholesale prices. Both Italy and France will be releasing their inflation rates for the month, along with the Final Core Inflation rate for the Euro Area.

GBP

Sterling remained on the front foot last week, benefitting from their vaccination race which has now seen over 23 million people get the jab. Sunak’s budget last week also provided some further confidence in the currency, while reiterating the governments commitment to restoring GDP. The risk-off tone in the market, driven by US inflation fears, helped to further support Sterling, while causing emerging market weakness.

This week the Bank Of England will vote on their benchmark interest rate, which is expected to remain at 0.1%. They will also provide details on their bond buying programme, which is expected to remain at £875 billion.

AUD

The Aussie Dollar outperformed in the market last week, through a combination of strong local data and US dollar weakness. The USD/AUD pair declined by 1.01% throughout the week and closed at 1.2875, after topping out around the 1.30 mark on Monday.

Local data showed signs of increased economic activity. NAB business confidence for February rose to 16, exceeding expectations, while the Westpac Consumer Confidence index increased by 2.6%.  The Reserve Bank of Australia is keeping its cash rate at 0.1%, and will do so until inflation is in the 2%-3% region. This will aid in boosting GDP, which is  forecasted to 3.5% In the next 2 years. Joblessness is expected to decline to 5.5% by the end of 2022, further supporting the narrative for a strong Aussie recovery from the downtick of COVID-19.

This week, it is worth looking out for February employment data as well as Retail sales and Balance of Trade for the month. Unemployment is forecasted to fall by 0.1%, to 6.3%, while Retail sales is expected to grow by 0.5% over the month.

NZD

The New Zealand Dollar remained relatively flat, moving mostly on international influences. While the Kiwi Dollar did not perform as well as it’s Aussie counterpart, US Dollar weakness helped the USD/NZD pair to make some gains, advancing by 0.21% from Monday-Friday.

This week, it will be worth looking out for Q4 Current Account figures, as well as Q4 GDP growth. New Zealand’s’ current account deficit is forecasted to shrink to $2.88 billion, after narrowing to $3.52 billion in Q3 of 2020. GDP growth is expected at 0.2% for Q4.

ZAR

After a harsh week in the market, the rand made a steady comeback alongside the recovery in South African bonds. As yields fell, the rand picked up some momentum, along with other emerging markets. Both the USD/ZAR and GBP/ZAR pairs depreciated by over 1% per day, for 3 consecutive days, bottoming out at around R14.80 and R20.70, respectively.

However, rates turned on Friday as US bond yields continued on their upwards path. Progress towards the release of Bidens’$1.9 trillion stimulus package, coupled with lower-than-expected unemployment claims, has contributed to global inflation concerns. In turn, the possibility of rate hikes has caused investors to shy away from emerging market pairs.

This week, S.A data releases include January Retail Sales, which is expected to rise from -1.3% to 2.1%. February Inflation and Balance of Trade will also be reported on Wednesday.