On Monday (October 4), the U.S. dollar fell against G-10 currencies across the board, U.S. Treasury yields rose, crude oil prices soared, and the stock market was weak. After OPEC+ stated that it would maintain a plan to gradually increase production, the Canadian dollar and the Norwegian krone were supported.
The US dollar index fell 0.27% to 93.80. The market weighed the risks of economic growth, energy shortages, the Fed’s policy path, and the threat of continued high inflation. The 10-year U.S. Treasury yield rose by 2 basis points to 1.48%; US President Biden warned that the government faces the risk of breaking the debt ceiling in two weeks.
Data released earlier showed that the growth of new orders for manufactured goods in the United States accelerated in August, indicating that the manufacturing industry remained strong, but due to shortages of raw materials and labor, economic growth appeared to have slowed in the third quarter. The US dollar received almost no support from this data.
However, in recent weeks, speculators in the foreign exchange market have become increasingly bullish on the U.S. dollar. The weekly position data released last Friday showed that the U.S. dollar net long position climbed to the highest level since March 2020.
However, Bank of America said it was right to buy the dollar on dips; analyst Ben Randol expects the dollar to regain its upward trend and maintain the forecast that the euro will reach 1.15 against the dollar in the fourth quarter. Randol said that the medium-term pressure on production capacity in the United States has overshadowed the impact of energy-related pressures in other regions, making the balance of inflation risk and its impact on the outcome of monetary policy a net positive for the dollar.
Traders pay attention to the US employment data that will be released this Friday to find clues about the Fed's next move.
Jefferies global foreign exchange director Brad Bechtel said that non-agricultural employment data will be a major focus of the market this week. Friday’s U.S. employment data is expected to show continued improvement in the job market, with 488,000 jobs expected to be added in September-enough to prompt the Fed to start reducing its stimulus before the end of the year.
The Fed has hinted that it may begin to reduce the size of monthly debt purchases as early as November, but traders worry that the sharp reduction in new jobs may delay the Fed's plan.
Bechtel said that if the increase is around 300,000, will the Fed react negatively? Probably not. Given that the momentum of reduction is already very strong, if this recent volatile data is only slightly lower than expected, it is difficult for the Fed's position to make a 180-degree turn. If we see some more extreme situations, such as the reduction of non-agricultural jobs, then another matter, the Fed may at least be forced to suspend.
The euro rose 0.22% to 1.1621 against the dollar; the dollar fell 0.11% to 110.93 against the yen; the Swiss franc led the rise of G-10 currencies; the dollar fell 0.9% to 0.9230 Swiss francs against the Swiss franc; the euro fell to 1 month against the Swiss franc Low point.
The pound rose 0.47% to 1.3610 against the dollar, continuing its rebound after hitting a nine-month low last week. Shaun Osborne, chief foreign exchange strategist at Scotiabank, said, “We believe that the pound is still unstable, as the UK may still face energy and food shortages in the fourth quarter, coupled with strong US data this week, the pound may Retest the $1.34 area and regain the September decline."
Oil-related currencies rose as New York crude oil futures rose to their highest level since 2014; the U.S. dollar fell 0.7% against the Canadian dollar to 1.2558 Canadian dollars, the lowest level since September 7, accompanied by a series of speculation and cross-platform Canadian dollar buying. The implied volatility of the US dollar against the Canadian dollar fell almost across the board, except for the one-month period, which covers the October 27th meeting of the Bank of Canada. The US dollar fell 1% against the Norwegian krone to 8.5459 kronor, the lowest point since July.
In terms of other currency pairs, the Australian dollar rose 0.32% to 0.7281 against the US dollar; the New Zealand dollar rose 0.30% to 0.6969 against the US dollar.
Preview Tuesday
| time | area | index | The former value | Predictive value |
| 07:30 | Japan | September Tokyo CPI annual rate (%) | -0.4 | -0.1 |
| 08:30 | Australia | August Goods and Services Trade Account ($100 million) | 121.17 | 101 |
| 08:30 | Australia | Monthly import rate in August (%) | 3 | 1 |
| 08:30 | Australia | Monthly export rate in August (%) | 5 | -3 |
| 16:30 | U.K | September Markit Service Industry PMI Final Value | 54.6 | 54.6 |
| 20:30 | America | August trade account (100 million U.S. dollars) | -701 | -706 |
| 20:30 | Canada | August trade account (100 million Canadian dollars) | 7.78 | 3.3 |
| 22:00 | America | September ISM non-manufacturing PMI | 61.7 | 59.9 |
| 04:30 AM | America | Changes in API crude oil inventories in the week as of October 1 (10,000 barrels) | 412.7 | |
| 04:30 AM | America | Changes in API gasoline inventories in the week ending October 1 (10,000 barrels) | 355.5 | |
| 04:30 AM | America | Changes in API refined oil inventories in the week as of October 1 (10,000 barrels) | 248.3 | |
11:30 Reserve Bank of Australia announces interest rate resolution
16:00 European Central Bank Management Committee Holtzman delivered a speech
23:00 European Central Bank President Lagarde delivers a speech
Summary of Institutional Views
Institutions look forward to the Reserve Bank of Australia interest rate decision
Michael Hewson, chief market analyst at CMC Markets: It is expected that the Reserve Bank of Australia interest rate decision will not change much. At the September meeting, the Reserve Bank of Australia will reduce the weekly bond purchases from A$5 billion to A$4 billion, but it is also cautious not to rule out The possibility of further deterioration in economic conditions. At the same time, the deadline for the bond purchase plan was extended from November to February next year, reflecting its concern that due to various blockade measures, any recovery may take longer. Looking ahead to the October interest rate resolution, Australia’s economic outlook has not improved significantly, but this is not surprising, as many restrictions still exist. This shows that the meeting is not expected to change much. The Reserve Bank of Australia may reiterate that it will continue to support the economy. Once the vaccination rate rises and restrictions are relaxed, we will see an economic rebound.
ANZ Bank looks ahead to the Reserve Bank of Australia interest rate decision: We believe that after the August and September statements, the October statement will be somewhat irrelevant, because the August and September statements must deal with the lockdown caused by the delta strain, and How to deal with the bond reduction plan.
Bank of America says it is still reasonable to buy U.S. dollars on dips
Bank of America strategists said that it is a good time to buy U.S. dollars on dips recently, as the economic slowdown and planned cuts in monetary stimulus are pushing investors to withdraw from risky assets. A U.S. dollar index has fallen for three days after hitting a high for the year on September 29; the index has risen nearly 4% so far in 2021. Strategists Ben Randol, Adarsh Sinha and Janice Xue believe that the market’s expectations for the Fed’s rate hike are still lagging behind the value in the 2024 dot plot. As long as this week's US non-agricultural employment report "avoids substantial weakness", it should pave the way for the reduction in size from next month.
Although downsizing and raising interest rates are still different aspects of the normalization of monetary policy, confirming the downsizing still reduces one reason for the foreign exchange market to doubt the Fed's determination. Rising inflationary pressures are also bound to push the central bank toward normalization of policy. The "buy on dips" mentality has boosted the stock market so far in 2021, but rising volatility and debt ceiling disputes may lead to further corrections in risky assets. Although risky markets Stabilization may trigger a further correction in the US dollar in the short term, but medium-term drivers still support the US dollar.
Financial website Fxstreet analyst Yohay Elam: Is the pound bear market coming?
The market may ignore consumption-related information and pay more attention to two headlines. First of all, British Prime Minister Johnson has stated that he does not intend to ease the fuel shortage by relaxing immigration regulations. The withdrawal of EU citizens from the British transportation system has caused the gas stations to run out of gasoline, and the ongoing crisis may undermine the economic recovery. Second, Frost, the former chief negotiator of the United Kingdom, will say that the EU must abandon its requirements related to the Northern Ireland Agreement. According to the "Daily Telegraph" report, he will also invoke Article 16 of the Brexit Agreement to take emergency measures to threaten the EU. Frost's remarks may be negative for the pound. Both the Federal Reserve and the Bank of England are preparing to tighten monetary policy. However, everything else is good for the bears.
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