The US job statistics cause Dollar weakness as the Rand strengthens.
Week starting 06-07-2021
- The past week saw the USD strengthen in anticipation of an improvement in the employment figures, which was released on Friday via the non-farm payrolls (NFP) report. The disappointing figure in the report led to sudden USD weakness.
- Due to the disappointing NFP figure, the market expects continued accommodative policy from the US Fed via lower interest rates, which indicates USD weakness for the foreseeable future.
- The next major data event on the horizon would be the US inflation data, which is set to be released on Thursday. There remain concerns about runaway inflation and low job growth, so this is set to be a noteworthy data release.
- This week saw volatility dominate movement in the EUR/GBP pair. We saw the EUR gaining significantly against majors during the early part of the week, however, the currency gave up almost all of these gains by Friday. This is evident in the fact that the EUR/GBP pair traded between 0.859 and 0.860 on Monday and broke through the 0.864 mark on Tuesday. However, the currency was trading lower than 0.860 for most of Wednesday and Thursday and broke the 0.857 mark on Friday.
- Data on Monday and Tuesday continued to point to a growing economy. Inflation was the main focus point as two of the largest economies (Germany and Spain) showed higher inflation rates. The Eurozone inflation was also significantly higher (2% YoY) than expected, being driven mainly by lower unemployment and higher manufacturing (manufacturing PMI at 63.1) activity and input prices.
- The ECB reiterated the commitment to the PEPP on Thursday as they believe current input prices (and inflation) is transitory due to supply bottlenecks. However, Christine Lagarde, president of the European Central Bank, alluded to downscaling of their bond buying. This comes amid concerns about borrowing costs in the region and could tilt the ECB to more of a hawkish stance in the near future.
- While the Sterling was well supported in the markets last week, the Pound was unable to hold its ground against the US Dollar, which clawed back some previous losses ahead of non-farm release on Friday. GBP/USD closed the week 0.23% lower, at 1.4154.
- Manufacturing PMI was revised slightly lower to 65.6 in May of 2021, from a preliminary forecast of 66.1. Nevertheless, the reading highlights the month-on-month growth from 60.9 in April, supported by record growth in factory activity. Construction PMI came in at 64.2 for the month of May, up from 61.6 in the previous month, further supporting the Pound.
- This week, the UK’s Balance of Trade for April will be released, after March saw a trade deficit reading of -£2B. The UK’s GDP growth rate for April will be released, after the 1.4% growth in March.
- The ZAR’s latest strength move was partly created by US jobs statistics that came out on Friday afternoon.
- The US Fed’s outlook on upcoming stimulus measures will also affect the ZAR this week as interest rates might be raised sooner, causing a ripple effect across the markets.
- Tuesday will see South Africa release data regarding the country’s GDP annual growth. The previous quarter saw the YoY growth shrink by 4.1% and the current forecast is sitting at -3.2%. This positive turn of events due to strong local commodity prices has surged the Rand to its strongest levels since February 2019.
- Last week saw the Australian Dollar strengthen about 0.4% against the greenback. Australia’s trade surplus widened by over AUD 2 billion in April. The balance of trade data was released on Wednesday and resulted in a surplus of AUD 8.028 billion, beating the AUD 7.9 billion market consensus.
- The NAB business confidence index for May is set to be released tomorrow and is expected to drop to 24 from April’s record high of 26.
- The Kiwi Dollar was one of the worst-performing currencies in the market last week. The New Zealand Dollar traded relatively flat during the mid-week trade, before pulling back against major currency pairs on Friday. GBP/NZD moved up by 0.84% on Thursday, before correcting slightly and closing the week around the 1.9610 mark.
- Last week, ANZ Business Confidence recorded a 1.8 reading for the month of May, up from -2.0 in the previous month. Terms of trade rose by 0.1% in the first quarter of 2021, following the 1.3% gain in the previous period.
- This week, Manufacturing Sales for Q1 will be released, after previous quarter growth came in at 2.0%. Business PMI for May are also due to be released (58.4).
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