SMATS FX Weekly Market Report | Monday 4 October 2021

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

USD

Over the past week we have seen the USD strengthen against 18 of the top 20 currencies, with the most notable strength being seen against the NZD (1.21%) and the MXN (2.26%), the only two currencies against which the USD weakened was the BRL (-0.49%) and the CNY (-0.17%).
Over the past week we have seen the continuous struggle in American politics regarding the raising of the debt ceiling and keeping the government operating and able to pay wages. This is a risk factor at play until they come to an agreement, so it is something to take note of.
Data wise, over the past week we have seen a generally improved view from the US, with Durable Goods Orders for Aug coming in at 1.8% from a level of 0.5% previously. Furthermore, on Thursday we had the US GDP for Q2 coming in at 6.2%, whereas it was expected at 6.1%.
Coming up this week we have employment data, with the ADP employment on Wednesday – it is expected to come in at 430k, up from 374k. On Friday we have the infamous Nonfarm Payroll data for September, we are expecting to see an increase from 235k to 460k. If both these come in as expected it should be USD positive.

GBP

GBP/USD closed the week 1.00% lower. After kicking off the week at 1.3543 and touching a low of 1.3533, the pair ended trade on Friday around the 1.3580 level.
The GDP Growth Rate expanded by 5.5% during the second quarter of the year, slightly outperforming expectations, after the U.K recorded a 1.4% contraction in GDP in Q1. The largest contributors to GDP growth came from wholesale and retail trade, accommodation & food service activities, education and human health, as well as social work activities.
The Current Account Balance for Q2 was also released last week. Despite expectations for a further widening of the current account deficit, the deficit narrowed from -£8.88 Billion in Q1 to -£8.0605 Billion.
Final Manufacturing PMI for September came in at 57.1, in line with the expected decline, after the previous month saw a figure of 60.3.
This week, the U.K will release their Balance of Trade figures for August, after a trade deficit of -£3.1 Billion was recorded in July. Final Services PMI for September will also come due, along with August’s figure for construction output, industrial production, and manufacturing production.

EUR

The past week saw continued volatility on the EUR/GBP pair. The currency pair traded mainly flat on Monday and Tuesday before posting significant gains during the midweek trading.
Improved consumer sentiment, coupled with stronger economic sentiment saw a higher-than-expected inflation rate (year on year) for September (3.5%), highest in three years.
During the ECB central banker’s forum (hosted by the ECB on Thursday), the European Central bank reiterated their commitment to looser monetary policy. Steering the economy out of the emergency conditions remain the priority as opposed to short term prices rises (i.e. inflation)

AUS

GBP/AUD made a move to the downside, depreciating by 0.90%. After opening at 1.8845 on Monday, the pair closed off above the 1.8660 support level.
Last week was rather light on the data front, coming out of Australia. Preliminary Building Permit numbers grew unexpectedly by 6.8% during August, despite a forecasted decline of 5%, thus rebounding from the previous months contraction of 8.06%. Furthermore, Final Manufacturing PMI came in at 56.8 for the month of September, up from 52 over the month.
This week, there will be various points of economic data coming out of Australia. Australia’s Balance of Trade at August will be released, after the previous reading of AUD $12.117 Billion. Retail Sales data for August will also come due, and is expected to expand by 1.7%, after Retail Sales shrank by 2.7% in July. NAB Business Confidence for September will also be released.
The Reserve Bank of Australia will also release their most-recent interest Rate decision this week. The RBA are expected to hold their cash rate at the ultra-low 0.1% level, in line with broader global monetary stance.

NZD

Building permits issued in August increased by 3.8% compared to the previous month, reaching a record high of 4378 consents issued.
The Kiwi dollar has weakened against 9 of its 10 main trading partners over the past week, currently trading at 1.44 against the greenback and 1.95 against the pound.
The Reserve Bank of New Zealand kept the cash rate at 0.25% during its August meeting after being put into an emergency lockdown. The RBNZ has another interest rate decision to make on Wednesday and policymakers are expecting a price hike before year end in order to anchor inflation targets. RBNZ officials have made comments strongly suggesting that the increase could be a 25 basis point increase this Wednesday.

ZAR

The ZAR has had a tough week but relative change in the past 7 days has gone mostly unchanged against major currencies but inter day volatility was extended and created a seemingly stronger Rand overall. The rate is currently trading at 20.279 against the British Pound, 14.947 against the US Dollar and 17.342 against the Euro.
This past month of September did see the Rand weaken averagely by 8.25 % as the Fed’s hawkish approach for the tightening of monetary policies in the US and upcoming QE tapering has given most developing countries a knock.
Further Rand weakness is expected in the coming months as the concern around commodity supply constraints from China and its impact on the global recovery post pandemic, is growing

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