SMATS FX is proud to provide our weekly analysis of currency markets and exchange rates.
USD
- The USD has pulled back from a remarkable rally over the past two weeks. We are currently sitting in the middle of the range of the past month, with the market treading water waiting on further data.
- Big week in the US on the data front, with the main event being the US Fed interest rate decision on Wednesday, the consensus is for nothing to change, remaining at 0.25%. This together with the press conference post the fact will keep the market busy.
- Thursday, we have QoQ US GDP growth figures which are expected to increase from 6.4% to 8.6%, if this does occur it should be USD positive, showing the economy is expanding, which is critical in this post-pandemic time. Overall, this week should be quite interesting with the importance of the data at play.
EUR
- The EUR gained significant ground during the early parts of last week. The EUR/GBP broke 0.865 on Tuesday before heading back to 0.860 at which it closed on Wednesday. We then saw the currency lose some ground again for the rest of the week, closing at 0.8756 on Friday against the GBP.
- Movements were mainly driven by the resurgence in the Coronavirus (specifically the Delta variant) and the subsequent reintroduction of social restrictions in some EEA countries. This has increased risk aversion amongst investors. Thereby propping up the currency for most of the week.
- Investors were eagerly watching signals from the ECB ahead of their policy statements and interest rates announcements on Thursday. The ECB more or less met expectations of a dovish stance on Thursday by reiterating their commitment to the PEPP and 0% interest rates. They also indicated that the central bank will be keeping interest rates lower for longer to boost growth. Their policy statement was not without controversy. The European stimulus package (mainly the size) became a source of debate as some countries would want to see it decrease (due to their inflation rate targets). This overall dovish stance continues to place a cap on EUR strength.
UK
- The pound started the week on the back foot. Risk-off sentiment saw the pound weakening against the Euro, US dollar, and CAD, before correcting finishing the week fairly flat. GBP/CAD closed the week 0.38% lower, while GBP/USD depreciated by a marginal 0.02%.
- Meanwhile, the Sterling gained some ground against developing-market currencies, such as the South African Rand and both the Kiwi and Aussie dollars. GBP/AUD appreciated by 0.34%, while GBP/NZD moved 0.26% higher.
- Last week in the United Kingdom, Retail Sales data was released for June. Retail Sales edged slightly higher, by 0.5%, after the 1.3% month-on-month decline in May.
- The GFK Consumer Confidence moved up -7 for July, after the reading stood at -9 in June.
- Services PMI came in at 57.8 for July, after the 62.4 reading in June. Manufacturing PMI also fell, from 63.9 in the prior month to 60.4 for July.
- This week will be rather light on the data from, coming out of the U.K. Looking into next month, we have the Bank OF England interest rate decision, on the 5th of August. This should provide further valuable insight into the BoE’s stance on monetary policy and the timeline for tapering of bond purchases.
AUD
- Last week, The Reserve Bank of Australia released its meeting minutes, which provided further insight into the views of Australia’s central bank. The RBA kept their cash rate unchanged, at 0.1%, as was widely anticipated by markets. Furthermore, the yield curve control program remained unchanged. Interestingly, while the RBA has committed to extending their bond-buying program until November, the minutes indicated that the RBA intends to reduce their purchases, from A$ 5 billion to A$ 4 billion.
- Retail Sales declined by 1.8% in June, after the 0.4% rise in May. Services PMI also moved downwards, in July, coming in at 56.8.
- This week, we will find out more about the inflationary pressure in the region. Australia will release its Inflation Rate for Q2 of 2021, which is forecasted to increase by 1% quarter-on-quarter, thus exceeding Q1’s inflation figure of 0.6%. Any further inflation could put additional pressure on the Aussie dollar, while favorably low inflation is likely to surprise AUD to the upside.
- Final figures for Manufacturing PMI will also come due, for July, after the previous month's reading of 58.6.
NZD
- The Kiwi dollar experienced its fourth consecutive week of weakness against the greenback last week.
- New Zealand’s balance of trade for the month of June was released in the early hours of this morning and resulted in a drop in their trade surplus with exports exceeding imports by NZ$261M. This is well below the NZ$500M forecast.
- Later this week on Thursday, we can expect the ANZ Business Confidence for July to be released. The business confidence is forecast to increase to 1.2 from Junes' -0.6.
ZAR
- This week has kicked off with a major risk-off sentiment as the Rand weakens across the board against major currencies. Currently trading at 20.50 GBP/ZAR and 14.90 USD/ZAR
- Monday morning has seen a 0.8% move so far as the country moved to level 3 lockdown from level 4 on Sunday evening.
- Broader sentiment appears somewhat mixed as the market turns wary of risk exposure ahead of the upcoming Fed update, meaning scope for major trends may be limited at the start of the week
SGD and HKD
- Last week in Hong Kong, unemployment came in at 5.5.%, for the month of June. These labor market figures came in after the 6% unemployment reading in May. The inflation rate came in at 0.7% year-on-year, in June, after the 1% rise in May.
- Over in Singapore, The inflation rate for June was reported at 0.0%, after the previous months 0.8% uptick.
- This week, Hong Kong will report Balance of Trade for June, along with their Q2 GDP Growth Rate. Hong Kong’s Trade deficit is expected to narrow significantly in the June reading, after recording a trade deficit of H$ 25.5 billion in May. GDP Growth Rate will also come due this week for the second quarter of 2021, after experiencing 5.4% growth in Q1.
- Over in Singapore, preliminary unemployment figures for Q2 will be released, after unemployment came in at 2.9% in the previous quarter. June PPI and Industrial Production will also come due.
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