Week starting 08-11-2021

USD

• The past week, the USD strengthened against most of the major currencies, with a somewhat mixed picture coming from the minor currencies. Overall, we saw the USD weaken against eight of the top 20 currencies, the most notable was the weakness seen against the Brazilian Real (BRL) (-2.47%) and the ZAR (-2.2%). The greatest gains were seen against the AUD (1.84%) and the Norwegian Krone (NOK) (1.87%).
   
• Last week, we had two major events: the US Fed interest rate decision and following POMC press conference, and the nonfarm payrolls data on Friday. At the Fed meeting, we heard that the US Fed will begin tapering its bond purchases. This starts the eventual move to hiking rates in the future. With the nonfarm payrolls data, we saw solid growth in the labour market, which was an area of concern. Overall, it’s been a positive week for the US.
   
• This week, there is not much to expect from the US. The most important event would be the US inflation data on Wednesday, which we expect to increase slightly, from 0.2% to 0.3% MoM. Furthermore, it’s important to take note of the spending bill being pushed through parliament.
   

EUR

• This week, the EUR/GBP pair hit a one-month high. The currency pair opened at 0.844, closing at 0.849 at the end of Monday. By Tuesday, the pair hit an almost four-week high of 0.850, thereafter retracing to 0.846 on Thursday. On Friday, we saw the currency pair hit 0.859 (a one-month high). The EUR ranged against both the USD and the Swiss Franc (CHF) but displayed significant volatility throughout the week and traded mainly lower against emerging market currencies.
• This week’s movement was driven by the continued policy divergence between the European Central Bank (ECB) and the US Fed. The Fed announced a reduction in its asset purchases (indicating an end of quantitative easing (QE) by mid to late 2022) and thereby starting their tapering process. However, the rhetoric from the Fed was mainly dovish as it emphasised the fact that rate hikes should not be expected soon.
• On the EUR front, the main driver continued to be supply bottlenecks which are keeping inflation higher than usual. The ECB has again mentioned the transitory nature of this but does recognise that inflation may “run hot for longer” than what was initially thought. A fishing dispute between the UK and France has also become a cause for concern as both sides have threatened legal action. These actions, if taken, may have medium- to long-term effects on the EUR/GBP. Investors will keep a close eye on these developments as well as on further rhetoric from the ECB, looking for any indicators of a change in policy direction.

GBP

• The past week, the GBP weakened across the board. There were only three out of the top 20 currencies against which the GBP strengthened. Those were the NOK (0.35%), AUD (0.37%) and the Turkish Lira (TRY) (0.07%). The GBP weakened most notably against the BRL (-3.89%) and the ZAR (-3.88%).
• On the data front, we had a “Super Thursday” in the UK with the Bank of England (BoE) meeting. The market was slightly surprised when only two members voted to raise rates, where the expectation was for three. This could be part of the reason the GBP has lost ground against most of the top 20 currencies.
• We don’t have all that much to look out for this upcoming week. The only major event is the UK GDP growth data on Thursday. It is expected to come in much lower than before, so if it surprises to the upside, that would be extremely positive for the market.

ZAR

• The Rand strengthened this past week, most noticeably against the GBP, AUD, and NOK. This was a direct result of local municipal elections held in South Africa on 1 November and the risk-on sentiment in the general market, causing traders to pull away from safer currencies like the USD.
• There are no major economic statistics due for this week, but year-on-year inflation data is set to come out next week and is expected to increase by 0.2%.
• Load shedding started up again in South Africa last week. Its cumulative effects on local businesses and industrial sector will only be felt in the coming weeks and months but could stagger growth potential for the country amidst a dismal recouperation from the effects of Covid lockdowns.

AUD

• Recently, we have seen major AUD weakness in the market, with the only gains made against the NOK (0.17%). There was weakness against every other top 20 currency, the most notable against the ZAR (-4.14%) and the BRL (-3.98%).
• The main event from the past week was the Reserve Bank of Australia’s (RBA) interest rate decision. The RBA did not change anything and kept the rate stable at 0.1%. If the market was expecting a rise, that could explain the AUD weakness. Apart from that, there wasn’t much happening regarding Australian data.
• Coming up this week, we have employment data on Thursday. This is expected to improve as Australia emerges out of various Covid-related lockdowns.

NZD

• Last week, New Zealand’s employment data was released. The third quarter of 2021 has displayed the lowest unemployment rate since the fourth quarter of 2007, at 3.4%. The fall in the unemployment rate is likely due to the continued travel restrictions putting pressure on the domestic labour force.
• The NZD is the strongest it has been against the Pound since February 2021 and currently trades at 1.89 to the Pound.
• In the week to come, we can expect the Business NZ Performance of Manufacturing Index pertaining to October to be released. The index is expected to climb slightly from 51.4 in September to 52.3.