SMATS FX Weekly Market Report | Monday 27 September 2021

SMATS FX is proud to provide our weekly analysis of currency markets and exchange rates.

USD

We saw mixed movement on the USD last week, with the Dollar weakening against 11 of the top 20 currencies. Out of this set, the most notable was the 1.77% weakening against the NOK and the 1.11% weakening against the RUB. The highest gains were seen against the JPY by 1.17% and the TRY, with a staggering 2.37%.
On the data front, the main event from the last week was the US Federal Open Market Committee (FOMC) meeting as well as the interest rate decision. Unsurprisingly, there were no changes made by the FOMC. The FOMC is planning to taper its bond buying in the future, but nothing yet.
This week, we have the durable goods orders, which is expected to come in at 0.7% from -0.1%. This should be in favor of the Dollar. Later in the week, we have the US gross domestic product (GDP) data. If growth is high, it should strengthen the USD further.

EUR

This week, the EUR/GBP pair ranged between 0.854 and 0.858, strengthening early in the week before falling and stabilizing on Friday. The main driver was the decrease in economic momentum, a continued increase in inflation, and caution due to the China Evergrande crisis.
The EUR was strong during the early parts of last week. This was mainly a continuation of trends observed the week before. The producer price index (PPI) data for Germany and France (two of the biggest economies in the region) released on Monday, pointing towards higher inflation. The currency then started stalling on Wednesday in anticipation of further data on Thursday. The lackluster manufacturing data released on Thursday weighed the currency down (breaking 0.854) until Friday when it stabilized around 0.855.
China’s Evergrande debt crisis was another sticking point due to fears of spillover to Europe. Investors were naturally cautious during the early part of the week.
During a CNBC interview on Friday, ECB president Lagarde maintained the stance that observed inflation is temporary and the ECB’s views on this remain unchanged. Regarding the QE measures, she stated that the ECB is “calibrating” their support measures. Emergency measures are being downscaled while other monetary measures, such as the APP, may be increased to accommodate for lower growth in the EEA.

GBP

The Bank of England (BoE) released its interest rate decision during the September meeting. The BoE left its benchmark interest rate at the ultra-low 0.1%, whilst simultaneously maintaining its bond-buying program at GBP 895 billion. The BoE also indicated that the argument for marginal tightening of policy has strengthened over the past month. This suggests that inflation could persist above 4% into 2022. Two out of nine policymakers voted for an early end to government bond purchases, compared to only one in the August meeting.
Expectations for the UK’s GDP in Q3 were lowered by almost 1%, putting the region about 2.5% below its pre-Covid level. Furthermore, the GfK consumer confidence indicator underperformed for September, coming in at -13 after the previous month’s reading of -8.
The preliminary September readings for both services and manufacturing PMI also came due. Manufacturing PMI fell further than expected, from 60.3 to 56.3. Services PMI also dipped from 55.0 in August to 54.6. 
Last week, the GBP/USD pair moved 0.49% lower as preference for risk-off investment saw the US Dollar outmuscle the Pound. After starting the week at the 1.3970 mark, the pair fell to a low of 1.3610 before closing at 1.3675 on Friday.
This week, we will find out more about GDP growth figures for the second quarter of the year. The UK’s Q2 current account balance will also come due.

AUD

Last week, Australia was very light on the data front. Nevertheless, manufacturing PMI rose to a three-month high of 57.3 in September, after the reading of 52.0 for the previous month. Services PMI followed suit, increasing to 44.9 after recording a 42.9 figure in August.
GBP/AUD depreciated by 0.41% during the weekly trade, after opening on Monday at 1.8910. The pair touched a low of 1.8750 before experiencing a partial correction and closing at 1.8833.
This week, Australia’s preliminary retail sales growth for August will come due. This reading will be released after retail sales declined by 2.7% in July, the largest month-on-month decline in growth since the beginning of this year. Other data out this week includes changes in home loans granted, as well as preliminary building permit numbers.

NZD

New Zealand’s trade deficit augmented to NZD 2.144 billion in August from July’s deficit of NZD 397.46 million. This is the largest trade deficit New Zealand has recorded, as imports increase by 5.3% and exports decrease by 24.6% from July. The news release caused chaos for the NZD on Friday. It lost about 0.8% to the greenback and 0.47% to the Pound
This week, we can expect the kiwi to take cues from China’s market turmoil. The unfolding of the Evergrande crisis could have a significant impact on the risk-sensitive currency.
In terms of new data this week, we can expect building permits for August to be released on Wednesday. The number of building consents issued for new dwellings is expected to increase by 2.1% from July’s record of 4,207 consents.

ZAR

The recent loss of momentum in the Rand couldn’t have come at a worse time. With municipal elections looming, local political parties have everything to lose with a weaker Rand and disapproval of local fiscal outlooks.
The Rand has slid back 1.84% against the Pound and 1.61 % against the Dollar this past week. The South African interest rate decision had little effect as policy makers left the rate unchanged amidst the uncertainty of the pandemic.
This week will see PPI figures come to light along with the balance of trade figures for August. These statistics will highlight how the country has been fighting the monetary issues surrounding the pandemic. The recent decline in balance of trade, month-on-month, indicates less exports in all major industries. This will impact the country’s ability to address future issues that will arise as a result.

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