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Currencies included: USD, EUR, GBP, ZAR, AUD and NZD

 

Data releases and relevant current affairs for the week

Currency movement forecasts, market analysis and expected data release results

Important events and predicted effects on currencies

 

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Market predictions and forex forecasts for the week of 22 August 2022.

Weekly market report 21 December 2021

Week starting 22-08-2022

 
 

We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.

 

USD

  • The US Dollar regained its footing and had a stellar week, with the currency strengthening against all the pairs we monitor. The two most notable gains were against the ZAR (4.86%) and the NZD (4.55%).

  • Surprisingly, there was only a small amount of data from the US. The USD surged in value after comments from the FOMC (Federal Open Market Committee) minutes reiterated the resolve of the US Fed to keep its rate-hiking cycle going full steam ahead. This came after the market started pricing in a more dovish approach at the next FOMC meeting in September. The effect of these notes from the FOMC meeting was exacerbated by various Fed officials confirming their resolve to hike rates by 75 basis points (bps) in the next meeting. We should note that, although this is the current view of the market, the Fed also maintains a stance of being nimble, and will easily adjust given new data. Thus, the USD rally should be cautiously watched, since the current technical recession in the US, coupled with inflation seeming to be coming off its peak, could lead the Fed to be less aggressive in its rate-hiking cycle going forward.

  • The first of the two main events to monitor this week is the second estimate of quarter-on-quarter US GDP data for Q2, which will be released on Thursday. This is expected to solidify the fact that the US is in a technical recession, with a predicted contraction of 0.9%. The second event is US Fed Chair Jerome Powell’s speech on Friday. We are interested to see his reaction to the GDP growth figure and take any guidance from him on how the Fed plans to tackle inflation, whilst keeping the economy afloat going forward. Another interesting event to look out for is the annual Jackson Hole Economic Symposium, where central bank leaders from around the globe will gather to discuss economic policy and how to tackle current global issues. This tends to influence global central bank policy, which currently seems to be on an extremely hawkish pivot.

EUR

  • The Euro had a mixed performance last week, strengthening against 10 of the 19 currencies we monitor. The most notable downside movements were against the USD (-2.17%) and the Indian Rupee (INR) (-1.79%), with the largest upside movements against the ZAR (2.72%) and the NZD (2.35%).
  • The Euro area had a few big events last week, with its Q2 quarter-on-quarter GDP growth estimate coming in positive. However, this was anticipated, and did not move the markets much. Month-on-month inflation for the entire area was also released and pulled back from its peaks, which is expected as energy prices lower.
  • This week, there will be limited data from the Euro area. The main factors to focus on would be consumer confidence and inflation expectations. Both point to a further negative trajectory, which could weigh on the Euro.

GBP

  • The Great British Pound had quite a disappointing week, with the currency losing value against 12 of the 19 currencies we monitor. The most notable losses were against the USD (-2.46%) and the INR (-2.17%), whilst the largest gains were against the ZAR (2.32%) and the NZD (1.97%).
  • Last week, year-on-year inflation hit double digits for July and there was a staggering 10.1% increase in prices from a year ago. Month-on-month inflation came in at 0.3%, slightly lower than the last month, but still not pointing to any respite for UK consumers. As a slight positive, the month-on-month UK retail sales for July came in positive, so there is still growth in spending, which is needed to keep the economy going.
  • This week, there isn’t a lot of significant data from the UK, so both global and local factors will move the currency. Locally, the faceoff between Sunak and Truss is heating up as various members of the party start choosing sides in their Prime Minister succession bids.

ZAR

  • The South African Rand had a terrible week and lost value against all the currencies we monitor. The ZAR gave up all its recent gains, most significantly against the USD (-4.75%) and the INR (-4.32%).
  • Last week’s losses were not based on any local factors, but purely a pivot back to the classic safe haven asset classes and currencies, such as the USD.
  • This week, there are a few important events to look out for. The first is the South African unemployment rate, which will be released on Tuesday. Unemployment is sitting at 34.5% but is expected to increase slightly. The South African inflation data will be released on Wednesday. We expect it to increase, in line with global trends, as the lower energy prices have not yet been passed on to the consumer. This heightened inflation environment might lead the SARB to raise interest rates once again to bring inflation down to within its 6% threshold. On Thursday, the South African PPI data will be released and is expected to increase by a staggering 17.65% (YoY). PPI is a leading indicator of CPI, and this does not bode well for the consumer.

AUD

  • The Australian Dollar was sold off, like other commodity currencies, and lost value against 15 of the 19 currencies we monitor. The greatest losses were against the USD (-3.33%) and the INR (-3.14%), whilst the marginal gains were against the ZAR (1.42%) and the NZD (1.28%).
  • There was no data to warrant the deterioration in the AUD, with the Reserve Bank of Australia’s meeting minutes showing the continued commitment to maintaining a rate-hiking cycle in line with global central bank policy moves. The currency was mostly moved by the rotation of funds into the USD, with US monetary policy appearing to remain tight in the near term.
  • Global factors will move the AUD this week due to no significant Australian data.

NZD

  • The New Zealand Dollar weakened against all but one of the currencies we monitor. The currency only strengthened against the ZAR (0.44%), whilst the most notable losses were against the USD (-4.11%) and the INR (-4.02%).
  • The NZD’s depreciation was a shock as the currency weakened even after the Reserve Bank of New Zealand rose interest rates by 50 bps. The market may have wanted a bit more and, even with this bump in interest rates, the currency remained on the back foot.
  • This week, New Zealand’s retail sales data for Q2 will be released on Thursday and is expected to turn positive, which is good for the NZD. Otherwise, the NZD will mostly be swayed by global factors and moves in the USD.

If you would like further information on the market along with personalised hedging strategies for you or your business, you can get in touch with our team at fxhedging@sableinternational.com.

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