SMATS FX is proud to provide our weekly analysis of currency markets and exchange rates.
- The US Dollar had an impressive trading week, last week, with the Dollar Index (DXY) moving up by 0.50%. After opening the week at 95.17, the DXY closed off at 95.64 on Friday.
- Last week was rather light on the data front, coming out of the United States. December figures for Building Permits and Housing starts were released, with both readings exceeding analyst expectations and rising higher than the prior month. Building Permits surged by 9.1%, to 1.873 million, and Housing starts increased by 1.4%, to 1.702 million.
- This week, all eyes will be on the Federal Reserve and their most recent Interest Rate Decision, with Fed Chair Jerome Powell signaling the high likelihood of an interest rate increase this year. Data relating to Durable Goods Orders, GDP growth, and Personal Income & Spending, will also all come due.
- This last week saw the British Pound weaken against all major currencies, with as much as 1.59% against the JPY and 0.9% against the US Dollar. This was off the back of unemployment and CPI figures, which were rather underwhelming.
- The PMI figures, released on Monday 24th, have extended their decline across the board, with Manufacturing and services coming in short of their forecasts and highlighting the ongoing impact of Omicron. With this in mind, the actual PMI data still printed above the 50 levels which is seen as expansionary and thus caused the British Pound to bounce off of key support levels held in the market.
- This week should see a stable rate of change and a steady flow as there is not much happening regarding statistics or market announcements in the UK. It will be interesting to watch how the British Pound reacts to the US federal Reserve meeting this week as there is a high chance that they will signal the removal of their stimulus program
- This past week we saw the EUR lose significant ground against all majors. The common currency opened at 0.834 on Monday before breaking through the 0.837 mark. We then saw a general decline before hitting a bottom at 0.83045 This trend was true for against all major currencies for this week. EUR strength has waned against EM currencies such as the ZAR, falling to 17.0953 on Thursday.
- The ECB officials speaking this week, reiterated their stance on inflation, namely that it is driven by temporary factors, but does not rule out that it may last longer than expected. Therefore, PEPP will be scaled down but a rate hike this year is highly unlikely.
- The divergence between monetary policy in the EU and the rest of the Western world is the main driving force behind the current weakness of the EUR. This coupled with higher inflation (driven by energy cost and resurgent supply chain issues) appears to be the main cap on the common currency for now.
- The recent economic data coming out of South Africa signaled continued signs of positive economic activity, with November’s Retail Sales growth reported at 3.3% (year-on-year). This figure was well above analyst expectations of 1.9%, and marks the third month of consecutive growth in retail trade.
- South Africa’s Inflation Rate came in at 5.9% (year-on-year) for the month of December. This reading exceeded analyst forecasts, of a rise from 5.5% towards 5.7%,. On a monthly basis, upwards price pressure added another 0.6%. Rising costs of transportation and fuel, as well as prices for food & beverages, were the main contributors.
- Positive Economic data, coupled with higher inflation numbers and increased pressures to raise interest rates, had a strengthening effect on the Rand. The GBP/ZAR pair moved down by 2.74% throughout the course of last week, closing off at R20.45 from an open of R21.05. EUR/ZAR depreciated by a comparable 2.52%, falling from R17.56 and ending the week at R17.11. USD/ZAR fared slightly better, shedding 1.89% and capping off the week at the around the R15.10 level.
- This week, the South African Reserve Bank will release their most recent Interest Rate Decision. Investors will be watching closely, with many analysts predicting a rise to 4%. This would come after the SARB raised their benchmark repo rate to 3.75% in November, the first rate hike in three years, as South Africa’s central bank works to keep inflation expectations well anchored.
- Australia has had a bit of mixed few days, strengthening against half of its main trading partners and weakening against the other half. Some positive data released last week, as the unemployment rate came in at 4.2% for December, beating expectations of 4.6%.
- Early hours of this morning saw the release of the inflation rate pertaining to the fourth quarter of last year. The inflation rate came out at 3.5% which is above the market estimates of 3.2%. This is mainly a result of the rising fuel prices and global supply chain issues during the festive period. There isn’t too much data being released for the rest of the week.
- However, the Reserve Bank of Australia is expected to make an interest rate decision on the 1st of February. With Inflation on the rise, it will be interesting to see whether the RBA keeps interest rates at the record low of 0.1%.
- Last week saw the Business NZ Performance of Manufacturing Index increase to 53.7 in December 2021, beating the expectations of 51.4.
- Later today, we can expect the release of the Balance of Trade data pertaining to December. New Zealand has been in a trade deficit for the previous 5 months leading up to December. The Balance of Trade is expected to revert to a surplus with a NZ$343 million balance forecast.
- The inflation rate for the fourth quarter of 2021 is to be released tomorrow. Inflation is expected to drop to 1.4% quarter on quarter from 2.2% in the third quarter of 2021. The expected drop in the inflation rate is likely due to the two interest rate hikes the Reserve Bank has implemented since the beginning of October last year.