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

 

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Market predictions and forex forecasts for the week of 24 January 2022.

Weekly market report for the week ahead

Week starting 24-01-2022

 

USD

  • The Dollar had an impressive trading week last week, with the Dollar Index (DXY) moving up by 0.50%. After opening the week at 95.17, the DXY closed off at 95.64 on 21 January 2022.

  • There was minimal data from the US last week. December figures for building permits and housing starts were released, with both readings exceeding analyst expectations and rising higher than the prior month. Building permits surged by 9.1%, to 1.873 million, and housing starts increased by 1.4%, to 1.702 million.

  • This week, all eyes will be on the Federal Reserve and its most recent interest rate decision, with the Fed Chair, Jerome Powell, signalling that an interest rate increase this year is likely. Data relating to durable goods orders, GDP growth, and personal income and spending, will also be released this week.

EUR

  • The EUR lost significant ground against all majors last week. The common currency opened at 0.834 on Monday before breaking through the 0.837 mark. The Euro declined before hitting a low of 0.8305. This trend continued against all major currencies last week. EUR strength has waned against emerging market (EM) currencies such as the ZAR, falling to 17.0953 on 20 January 2022.
  • The European Central Bank (ECB) officials spoke this week and reiterated their stance on inflation, namely that it is driven by temporary factors, but does not rule out that it may last longer than expected. Therefore, the pandemic emergency purchase programme (PEPP) will be scaled down, but a rate hike this year is highly unlikely.
  • The divergence between monetary policy in the EU and the rest of the western world is the main driving force behind the current weakness of the EUR. This, coupled with higher inflation driven by energy cost and resurgent supply chain issues, appears to be the main cap on the common currency for now.

GBP

  • Last week, the GBP weakened against all major currencies, weakening as much as 1.59% against the Japanese Yen (JPY) and 0.9% against the USD. This was off the back of unemployment and consumer price index (CPI) figures, which were underwhelming.
  • The purchasing manager’s index (PMI) figures, released on Monday, 24 January 2022, have extended their decline across the board. Manufacturing and services were below their forecasts and highlight the ongoing impact of Omicron. The actual PMI data still printed above the 50 levels, which is considered expansionary, and thus caused the Pound to bounce off key support levels held in the market.
  • For now, there should be a stable rate of change and a steady flow as there is not much to expect regarding statistics or market announcements in the UK. It will be interesting to watch how the Pound reacts to the US Federal Reserve meeting this week as there is a high chance that it will signal the removal of the US stimulus programme.

ZAR

  • The recent economic data coming out of South Africa signalled continued signs of positive economic activity, with November’s retail sales growth reported at 3.3% (YoY). This figure was well above analyst expectations of 1.9% and marks the third month of consecutive growth in retail trade.
  • South Africa’s inflation rate came in at 5.9% (YoY) for December. This reading exceeded analyst forecasts of a rise from 5.5% towards 5.7%. On a monthly basis, upwards price pressure added another 0.6%. Rising costs of transportation and fuel, as well as prices for food and beverages, were the main contributors.
  • Positive economic data, coupled with higher inflation numbers and increased pressures to raise interest rates, had a strengthening effect on the Rand. The GBP/ZAR pair moved down by 2.74% over the course of last week, closing off at R20.45 from an open of R21.05. EUR/ZAR depreciated by a comparable 2.52%, falling from R17.56 and ending the week at R17.11. USD/ZAR fared slightly better, shedding 1.89% and ending the week at the around the R15.10 level.
  • This week, the South African Reserve Bank (SARB) will release its most recent interest rate decision. Investors will be watching closely, with many analysts predicting a rise to 4%. This would come after the SARB raised its benchmark repo rate to 3.75% in November, the first rate hike in three years, as South Africa’s central bank works to keep inflation expectations well anchored.

AUD

  • Australia strengthened against half of its main trading partners and weakened against the other half. Some positive data released last week, as the unemployment rate came in at 4.2% for December, beating expectations of 4.6%.
  • Early hours of this morning saw the release of the inflation rate pertaining to the fourth quarter of last year. The inflation rate came out at 3.5% which is above the market estimates of 3.2%. This is a result of the rising fuel prices and global supply chain issues during the festive period. There is no noteworthy data being released for the rest of the week.
  • The Reserve Bank of Australia (RBA) is expected to make an interest rate decision on 1 February 2022. With inflation on the rise, it will be interesting to see whether the RBA keeps interest rates at the record low of 0.1%.

NZD

  • The Business NZ performance of manufacturing index increased to 53.7 in December 2021, beating the expectations of 51.4.
  • On 25 January 2022 we can expect the release of the balance of trade data pertaining to December. New Zealand has been in a trade deficit for the previous five months leading up to December. The balance of trade is expected to revert to a surplus with a NZD 343 million balance forecast.
  • The inflation rate for the fourth quarter of 2021 is to be released on 26 January 2022. Inflation is expected to drop to 1.4% (QoQ) from 2.2% in the third quarter of 2021. The expected drop in the inflation rate is likely due to the two interest rate hikes the Reserve Bank of New Zealand has implemented since the beginning of October 2021.

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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