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Market predictions and forex forecasts for the week of 3 May 2022.
Week starting 03-05-2022
We have excluded the Russian Ruble from the analysis in our report due to the extreme volatility associated with the currency.
- The US Dollar gained ground against all its major trading pairs for another week in a row. The USD strengthened most against the Brazilian Real (BRL) (4.14%) and the Norwegian Krone (NOK) (3.89%).
- A major push to safe-haven currencies over the past few weeks, together with the increased hawkish tones from the US Federal Reserve, led to an astronomical rally in the USD. The markets seem to be pricing in three to four consecutive 50 basis-point rate hikes by the Fed, although we'll see if this is a case of “buy the rumour, sell the fact”.
- The main upset regarding US data was the contraction in quarter-on-quarter GDP growth data for Q1. The GDP growth contracted by 1.4% compared to the previous growth of 6.9%.
- The main event for this week is the US Fed interest rate decision. The Fed has been vocal about its plans and is trying to orchestrate a “soft landing”, trying to ensure the market does not overreact and plunge the economy into a recession. In addition, the US nonfarm payrolls data will be released on Friday. This is expected to remain solid, pointing to the US economy remaining resilient during this time of high inflation and rising interest rates.
- The EUR had a bad week, weakening against 12 of the top 19 currency trading pairs. The Euro weakened most notably against the Indian Rupee (INR) (-2.35%) and the USD (-1.99%) and strengthened most significantly against the BRL (1.90%) and the NOK (1.84%).
- Apart from the obvious impact of the Russian invasion of Ukraine, sentiment of producers and consumers in the Eurozone has dwindled. Russia also cut off gas supply to Poland and Bulgaria as they refused to pay for the gas in Roubles. This has led to many other European countries becoming increasingly worried the same might happen to them – further impacting the EUR.
- For European data, EUR area growth increased for Q1, as the true effects of the war in Ukraine will only be evident in the months to come.
- This week, a speech by European Central Bank President Christine Lagarde will provide insight into the short-term expectations for interest rates. Additionally, retail sales data for March will be released on Wednesday. These figured are expected to be underwhelming, which might drag down the EUR.
- A mixed performance from the British Pound, weakening against 10 of the top 19 trading pairs. The most notable weakening was against the INR (-2.01%) and the USD (-1.98%), whilst the largest strengthening was against the BRL (2.04%) and the NOK (1.82%).
- Although global factors remain a major concern, local political factors have also weighed on the GBP, with the “partygate” scandal continuing to cause drama in the House of Commons. On the data front, nothing too dramatic transpired over the past week.
- This week, the main factor to watch is the Bank of England interest rate decision on Thursday. An increase by 25 basis points to 1% is expected.
- The South African Rand had a dismal week of trading, weakening against 15 of its top 19 trading pairs. The largest losses were against the USD (-2.67%) and the INR (-2.78%), whilst the most notable gains were against the BRL (1.22%) and the NOK (1.08%).
- There has been massive volatility in the ZAR, which we have come to expect in recent years. However, there seemed to be a false sense of security over the past few months whilst the ZAR gained ground continuously. This was abruptly halted in the last two weeks with the currency losing ground on all fronts.
- There was no meaningful data from South Africa last week. The South African balance of trade for March increased, which can be attributed to the stronger ZAR during this time and the increase in the gold price.
- This week, there is also no important data from South Africa. Analysts are waiting to determine if the recent weakness in the ZAR continues, or if we see a moment of reprieve.
- The Australian Dollar had a negative week, weakening against 10 of the top 19 trading pairs. The most notable weaknesses were against the INR (-2.34%) and the USD (-1.92%), whilst the most notable strengthening was against the BRL (2.00%) and the NOK (1.87%).
- Last week, Australian inflation hit levels last seen in the early 2000s. This is in line with worldwide trends and, therefore, is not too surprising. This morning, 3 May, the Reserve Bank of Australia (RBA) raised interest rates by 25 basis points to a level of 0.35%. This is understandable as the RBA seems to be following global central banks in using interest rates to try and curb inflation.
- This week, there is no significant data from Australia. Analysts will monitor how the market digests this increase in the Australian interest rates.
- The New Zealand Dollar had a terrible week of trading, weakening against 17 of the top 19 trading pairs. The most notable weaknesses were against the INR (-3.38%) and the USD (-2.85%), whilst the currency only strengthened against the NOK (0.77%) and the Polish Złoty (PLN) (0.09%).
- There was minimal data from New Zealand. The country’s trade deficit contracted, which is quite a positive development, yet the market still sold off the NZD as risk sentiment weighed on the currency.
- This week, unemployment data will be released on Wednesday, followed by the Reserve Bank of New Zealand’s press conference, which should not be ignored as this could give us an indication of any forward guidance from the central bank.
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