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Market predictions and forex forecasts for the week of 1 November 2021.
Week starting 01-11-2021
- Over the past week, we have seen the USD end stronger. The Dollar weakened against six of the top 20 currencies and strengthened against the balance. The most notable strengthening movement was against the ZAR, moving an astronomical 4.19%. It depreciated against the CHF by -0.47%.
- The main data event from the past week was the dismal GDP growth for Q3. It was expected to drop from 6.7% to 2.7% but came in at 2%.
- The main focus this coming week is the US Fed interest rate decision and the following press conference. We don’t expect any changes, but the tone regarding tapering should be closely watched. On Friday, we have the US nonfarm payrolls data, where an increase in the jobs added is expected to be 450,000 under consensus.
- The Democrats move closer to pushing through a $1.8 trillion spending bill. This will add some serious capital expenditure on the government side, hopefully propping up their GDP growth.
- This week, the EUR/GBP hit a seven-month low at 0.8399 on Thursday before retracing back to 0.843 on Friday. Some large swings were noted against the USD, moving from 1.168 to 1.153 on Friday. The only gains were seen against emerging market currencies such as the ZAR and TRY as fiscal, political, and monetary policy weighs their respective currencies down.
- The European Central Bank (ECB) is sticking to its “inflation is temporary” rhetoric despite recognising that inflation will be higher for a longer period than initially thought. The biggest drivers remain the energy crisis and supply chain bottlenecks. Investors, however, have noticed a monetary policy divergence between the ECB and the USD Fed. While the ECB focusses on maintaining growth (thereby allowing inflation to “run hotter for longer”), the Fed is more concerned with keeping prices in check. This may exacerbate EUR weakness for the medium to long term.
- Last week was light on data from the UK. Mortgage approvals dropped to 72,600 in September, from 74,500 in the month prior. Additionally, mortgage lending rose to £9.5 billion for September, up from £5.3 billion in August.
- Last week, the UK’s Autumn Budget was delivered by Rishi Sunak and the Office for Budget Responsibility (OBR). Despite an upbeat financial assessment and a GDP growth forecast of 6.5% for 2021, the Pound lost its footing in the forex markets, highlighting the underwhelmed investor mood.
- This week, the Bank of England (BoE) will release its interest rate decision. The BoE is expected to hold rates at 0.1%. Furthermore, bond buying is expected to remain at £875 billion. Markets will be watching closely to see if the BoE hints at the tapering of asset purchases.
- Services PMI for October is scheduled to be released and is forecast to rise towards 58 after the reading of 55.4 in September. Composite PMI (October) will also come due and is expected to increase from 54.9 to 56.8.
- The South African Rand has depreciated quite drastically this past week, with movements to the downside coming from 17 of the top 20 currencies. The most notable weakness was against the NZD and AUD, coming in at -4.61% and -4.57% respectively.
- Risks attributable to the emerging market economy have been driving the ZAR weakness against the major developed market currencies. Rand movements can be partly attributed to the sudden move to stage 4 loadshedding, adding another major blow to the economy. Furthermore, SA has its local government elections on Monday, which is likely adding to ZAR volatility.
- On the data front, producer price index (PPI) figures for September were released last week. PPI came in at 0.9% (MoM), exceeding an expected figure of 0.6%, and added to the 0.8% increase in August. On a yearly basis, PPI was reported at 7.8%. Balance of trade figures also came due, indicating that the trade surplus shrank from to R42.3 billion in August to R22.23 billion in September.
- Next week, South Africa will report October figures for foreign exchange reserves, total vehicle sales, and ABSA manufacturing PMI. The South African Chamber of Commerce and Industry business confidence index will also come due, along with the medium-term budget policy statement.
- The inflation rate was reported at 3% on a year-on-year basis, declining from the 3.8% reading in Q2. While the result was influenced by the “base effect”, quarter-on-quarter inflation came in at 0.8%, highlighting the effect of price pressure in Q3.
- Export and import price changes were also released last week. Export prices rose by 6.2% over the third quarter of 2021, undercutting an expected 10% rise and adding to the 13.2% increase in Q2. Import prices moved up by 5.4% in Q3, adding to the 1.9% rise in Q2. Import prices rose further than the 2.3% market estimate.
- This week, the Reserve Bank of Australia (RBA) will release its most recent interest rate decision. The RBA is expected to hold its cash rate at the ultra-low level of 0.1%.
- Balance of trade data for the month of September will also come due. Australia’s trade surplus is expected to narrow towards AUD 10 billion, after the previous reading of AUD 15.08 billion. Retail sales growth for September is also scheduled to be released, and is expected to come in at -0.9%, adding to the previous months 1.7% contraction.
- Last week, New Zealand’s balance of trade was released. New Zealand’s trade deficit widened to NZD 2.17 billion during September, expanding marginally from the NZD 2.14 billion deficit recorded in August. Nevertheless, the current trade balance far exceeds the NZD 1.02 billion deficit recorded in September 2020. While exports increased by 9.6% over the past year, imports rose by 30.50%. The most significant contributor to increased imports came from vehicles and vehicle parts.
- The ANZ business outlook index in New Zealand was revised sharply lower to -13.4 in October 2021 from a preliminary reading of -8.6. The latest figure followed September's print of -7.2, amid Covid-related uncertainty as well as intense inflation and cost pressures.
- This week, the New Zealand unemployment and labor participation rates will be released for Q3, along with Q3 employment change figures. The unemployment rate is forecast to dip from 4% to 3.9%, while the participation rate is expected to remain at 70.50%.
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