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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 5 September 2022.

Weekly market assessment for the week ahead

Week starting 05-09-2022

 
 

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 had another great week, with the currency strengthening against 17 of the top 19 currency pairs we monitor. The most notable upside movements were against the Norwegian Krone (NOK) (3.30%) and the ZAR (2.89%), whilst the only two declines were against the Indian Rupee (INR) (-0.3%) and the Mexican Peso (MXN) (-0.27%).

  • The USD hit extraordinary highs against most global currencies. The USD hit a 24-year high against the Japanese Yen (JPY), a 20-year high against the EUR, and close to a 37-year high against the GBP. It seems like nothing can stop this outrageous USD strength. The surge in the USD came after Fed Chair Powell remained extremely hawkish and reiterated that the Fed is willing to put the economy through short-term pain, for long-term gain. Therefore, we expect the Fed to hike rates by 75 basis-points (bps) at the next Federal Open Market Committee (FOMC) meeting later this month. On Friday, the US nonfarm payrolls data was released, which showed a higher-than-anticipated increase in job growth, which would also add weight to the rumour of the Fed raising interest rates in the short term.

  • Monday is a US holiday (Labour Day) and so there will be less liquidity in the markets. After such a major surge in the USD last week, this could result in some major volatility in the global markets on both Monday and Tuesday. There will be minimal data from the US this week, so we will monitor if the major strength in the market remains.

EUR

  • Last week, the Euro strengthened against 13 of the top 19 currencies we monitor. The most notable gains were against the NOK (2.29%) and the ZAR (2.00%), whilst the largest declines were against the MXN (-1.23%) and the USD (-0.90%).
  • The major surge in the EUR came after markets priced in a 75-bps hike at the next meeting of the European Central Bank (ECB). EU inflation hit another record high, with the August year-on-year inflation figure coming in at 9.1%. Russia suspended gas supplies to the EU via its Nord Stream 1 pipeline, citing lack of equipment to service the pipeline resulting from the sanctions imposed by the EU and US. However, this shutdown of gas supplies will only hit the EUR in the new week.
  • This week, the estimates of EU quarter-on-quarter GDP growth for Q3 will be released on Wednesday. This is expected to remain positive, but we will monitor this closely. The main event of the week is the ECB interest rate decision which will be released on Thursday. Here, we observe if the market bets of a 75-bps hike will come to fruition, if they hike by 50 bps, we can expect the EUR to be sold off.

GBP

  • The British Pound had yet another dismal performance, with a shortened trading week adding some extra volatility into the mix. The GBP weakened against 16 of the 19 currencies we monitor. The notable gains were against the NOK (1.0%) and the ZAR (0.83%), whilst the most significant declines were against the INR (-2.46%) and the USD (-2.10%).
  • Due to the bank holiday on Monday, 29 August, there was less liquidity in the market at the start of the week. The data market has been relatively quiet out of the UK, with all eyes on the upcoming Prime Minister vote and the currency was mostly influenced by global factors, rather than local data.
  • The main event this week will be the outcome of the vote for the next Prime Minister of the UK. Truss seems to be the favourite in the bid against Sunak. We look to see if the stability of a new Prime Minister would result in some GBP strength over the next week.

ZAR

  • The South African Rand had a dark red week, with the currency weakening against 17 of the top 19 currencies we monitor. The only two gains were against the NOK (0.17%) and the Brazilian Real (BRL) (0.20%), whilst the largest downside movements were against the INR (-3.20%) and the MXN (-3.16%).
  • The weakness in the ZAR can be attributed mostly to a rotation to the USD, as there were minimal local factors influencing the currency.
  • This week’s main event is the Q2 GDP growth data which will be released on Tuesday. We expect a contraction on a quarter-on-quarter basis of between 0.5 and 0.7% which is sure to weigh heavily on the ZAR.

AUD

  • The Australian Dollar had moderate declines, weakening against 14 of the top 19 currencies we monitor. The largest gains were against the BRL (1.53%) and the NOK (1.50%), whilst the most notable declines were against the MXN (-1.95%) and the USD (-1.55%).
  • There was minimal data from Australia last week. Last week’s volatility in the AUD was mainly influenced by global factors such as the surging USD and another Covid outbreak threat in China.
  • This week, the Reserve Bank of Australia’s interest rate decision will be released on Tuesday, where it is expected to raise rates by 50 bps, to 2.35%. Any deviation from this would result in volatility. We do not expect them to hike by anything less than 50 bps, as the global central banks all seem to be on the same page with 50-bps hikes or more. The Australian quarter-on-quarter GDP growth data for Q2 will be released on Wednesday, where we expect to see sustained growth, which would be AUD positive.

NZD

  • A surprisingly green week for the New Zealand Dollar, which strengthened against 10 of the top 19 currencies we monitor. The most notable gains were against the NOK (2.03%) and the ZAR (1.84%), whilst the most impactful losses were against the MXN (-1.37%) and the USD (-1.07%).
  • The uptick in the NZD did not have much to do with any data releases from the country, as there were none to take note of.
  • As this new week begins, it seems that the NZD’s strength has continued, but we look to see if this can be sustained throughout the week. For New Zealand data, another slow week is expected, and we foresee the currency being moved by global factors, rather than local.

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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