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Market predictions and forex forecasts for the week of 4 April 2022.
Week starting 04-04-2022
We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.
- The positive economic data which came out of the US last week strengthened the economy. The unemployment rate fell to 3.6% in March from 3.8% in the prior month. Additionally, the ADP report indicated that another 455,000 new jobs were added to the US economy, and there are now a record five million more job openings than unemployed people in the US.
- Despite encouraging economic data, the greenback had a mixed performance as the Dollar Index (DXY) edged 0.16% lower. The USD strengthened marginally against the AUD, Canadian Dollar (CAD) and Japanese Yen (JPY), with its most significant upside moves made against the NZD and GBP. The Dollar also lost 0.62% and 0.61% against the EUR and the Swiss Franc (CHF), respectively.
- This week, there is minimal significant US data. The balance of trade figures will be released for February. The US trade balance is forecast to come in at $88 billion, down from $89.7 billion in January. This would be a result of both a $0.6 billion increase in exports and a $1.1 billion decline in imports.
- The EUR/USD and EUR/ZAR pairs experienced significant volatility this week. The EUR has started to strengthen against the GBP as negative sentiment begins to abate and monetary policy reacts to data being released.
- Negative sentiment due to the war on Ukraine has eased this week due to ongoing talks with Russia. While Ukrainian representatives have stated that they are willing to discuss neutrality (no NATO membership) in exchange for security guarantees from other European powers, they have also reiterated their skepticism on the Russian military downscaling.
- Inflation remained the largest driver of the EUR’s movement this week. Germany, one of the largest EU members, recorded inflation at 7.3 % – the highest it’s been since 1981. Meanwhile, inflation for the Euro area shot up to 7.5% – an all-time high. Inflation continues to erode the spending power of the region and will be a major ceiling for the local currency going forward.
- The Pound encountered headwinds in the forex markets, weakening against most currencies. This includes a 1.13% and 0.52% depreciation against the Euro and US Dollar, respectively. It appears the Bank of England’s governor, Andrew Bailey, has softened expectations of an exchange rate hike during the Ukrainian turmoil. This appears to be having an adverse impact on the Pound.
- For the UK’s data last week, the GDP growth came in at 1.3% for Q4. This figure exceeded market expectations of a 1.0% rise and added to the 0.90% growth for Q3. Additionally, the UK’s current account deficit shrank to £7.3 billion for Q4 from £28.9 billion in the previous quarter.
- This week, there will be minimal data released from the UK. Nevertheless, we can expect the balance of trade for February, along with updated figures for manufacturing and industrial production.
- The Rand was not able to further its winning streak in the forex markets last week, and the emerging market currency appears to have lost its recent momentum. The GBP/ZAR pair appreciated by 0.25%, closing off the week at R19.21, while USD/ZAR moved 0.70% higher. After opening the week at R14.55, the Rand ended the week at R14.65 against the USD.
- While the Rand ended in the red against most major currencies, its most notable move was against the EUR. With the Euro finding its footing again, the EUR/ZAR pair made a 1.43% move to the upside. The Rand closed at R16.20 against the EUR, after kicking off the week at R16.
- There was a range of South African economic data released last week. The South African unemployment rate for Q4 of 2021 was released, rising to 35.3%, in line with expectations, from a previous reading of 34.9%. Unemployed persons rose by 300,000, from 7.6 million to 7.9 million.
- South Africa’s balance of trade skyrocketed in February, as the country’s trade surplus came in at R10.6 billion. The significant rise, from a surplus of R4.07 billion in January, highlights the recent demand surge in South African exports. This economic data helps us to understand the recent strength in the Rand.
- There will be less South African data released this week, with little other than manufacturing data scheduled for release.
- The AUD lost some momentum last week as commodity prices stabilised and the uncertainty around the Ukraine conflict starts to abate. The AUD/USD pair’s volatility has been significant in the past week due to inflation pressure and monetary policy developments in the US. The AUD did not fare much better against the JPY, closing at 91.06 on Friday after opening at 92.76 on Tuesday.
- Retail sales figures released last week and came in at 1.8%, higher than the expected 1%, as consumers are not deterred by the inflation increase of 0.8 %, up from 0.5% the previous month. It is evident that, through being a net exporter of commodities, Australia can sidestep much of the supply-driven inflation and thereby maintain consumer confidence.
- In the week ahead, investors will look out for the country’s balance of trade data to gauge the impact of increased commodities prices on Australia’s foreign exchange reserves and income.
- The NZD had a mixed trading week. The currency was strong against the USD (opening at 0.689 on Tuesday and closing at 0.691 on Friday) and the AUD, while trading weaker against the JPY and CHF.
- Not much has been reported on the data front. The only points of interest have been an increase in business confidence and a fall in consumer confidence (77.9 from 81.7 in March), as inflation continues to hamper economic activity.
- Looking at the week ahead, the only significant data released will be the electronic card spending data. It is expected that electronic payments will decrease, mainly driven by weaker consumer confidence and higher inflation.
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