US Open Note – Stocks recover and dollar takes back seat



Market Sentiment picks up and central bank meetings draw focus

The major US indices are gradually extending yesterday’s rebound while the dollar continues to dwindle. Nonetheless, as worries around China’s real estate giant Evergrande Group and its recent warnings of defaulting on its debt payments remain one of the global highlights, the spotlight continues to be directed around central banks. Investors continue to look for clues around meetings, with the BOJ expected to remain dovish and the Fed to comment on the taper timeline.

The pullback in the dollar index has resulted in a test of the 93.00 mark, while the softer greenback has blown wind into the sails of its peers in the forex arena. The euro and pound have crept higher, currently at $1.1744 and $1.3660 respectively. Furthermore, the swiss franc has strengthened and the USD/CHF pair has plunged to 0.9240 per dollar, and USD/JPY is presently falling past yesterday’s intraday low of 109.30.

No change in policy is expected by the Fed, but investors are expecting a hawkish mention of the tapering story. Another positive for the dollar today has come from stronger new building permits for August at 1.73M, overshooting July’s numbers of 1.63M and the forecast of 1.60M. Furthermore, the Q2 current account hovered around expectations of -193B, while new housing starts picked up to 1.62M, versus estimations of 1.55M.

UK under new strain

An increase in the UK’s CBI Industrial orders to 22 for September beat the forecast of 15 and the previous month of 18, signalling a positive for business sentiment. That said, as the UK is handling the pandemic well and progress with its vaccinations continues, a new issue has come to light, which could delay its recovery. Its energy crisis has hit a snag with a cable carrying power from France, which was due to come online, expected to be operational again around October 23. Additionally, rising energy prices are causing suppliers to cease operation. Persistent rises in prices and shortages are not advantageous for inflation and supply chains, which could delay the BOE acting in any hawkish way, and hurt the recovery speed. This may keep the pound from advancing on the dollar’s setback.

The picture down under clashes

The antipodean currencies are slowly floating higher with the aussie at 0.7265 and the kiwi at 0.7035, while down under the RBA and the RBNZ stand at opposite ends of the spectrum.  The RBA motioned a dovish hold by reducing asset purchases by AU$1Bln, but extending the timeline to February 2022. The RBNZ is signalling hawkish expectations of a 25bp hike in the following month. That said, the RBA is calculating delays to inflation and employment due to the Delta variant, which is driving uncertainty towards the country’s recovery timeline.

Oil and metals in the green; Trudeau triumphs

Gold and silver are starting to shine again pushing up to $1,767/oz and $22.56/oz respectively. WTI futures are holding around the $71.00 per barrel mark.

Liberal leader Justin Trudeau has won his early call for election, cementing a third term as Canada’s Prime Minister. His win may be due to the way he handled the coronavirus crisis and this could reinforce his mandate to push Canada through the pandemic. This may be part of the formula, along with rising oil prices, that has assisted the Canadian dollar with fresh strength, pushing the USD/CAD pair down to C$1.2762. The new housing price index for August ticked lower to 0.7%, missing the 0.8% forecast, but beat July’s number of 0.4%, which is another positive for the loonie.

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