USD could witness volatility on Fed rate hike decision but will continue to trend upwards given that ECB and Bank of Japan will continue with their QE on the back of global economic uncertainty.
USD last week came under pressure on mounting uncertainty over the upcoming Fed policy, whether the central bank will hike interest rates or will remain neutral amidst weak global growth outlook and fresh concerns over slowdown in China. Data released on Thursday showed that China’s PPI (Producer Price Index) decline in August was the biggest drop since 2009. U.S. monthly job data released previous to last Friday has made the USD vulnerable to profit taking as the data failed to provide any support to the expectations of interest rate hikes. USD Index (DXY), which tracks the movement of the USD against six major currencies, managed to post a gain of 1.08% on weekly basis to close at levels of 95.19.
USD will continue to remain under pressure until Fed policy after which it is expected that USD will get some sort of direction depending on the outcome of the meeting. Meanwhile China finance ministry on Tuesday indicated fresh measures to stimulate economic growth in China.
U.S. Labour department on Thursday reported that U.S. import prices declined by 1.8% in the month of August against the expectation of a decline of 1.6%, the decline was the largest in seven months.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 10th August increased by 12,000 to 282,000 from the previous week’s total of 270,000 and against expectations of a rise of 5,000 to 275,000.
U.S. Department of Labour’s Bureau of Labour Statistics (BLS) reported that Producer Price Index for August remained unchanged, following a 0.2% gain in the month of July and against the expectation of 0.6% decline. U.S. Labour Department on Wednesday will release the Consumer Price Index (CPI) for August, which will coincides with the start of the FOMC’s two-day September meeting.
Euro appreciated by 1.70% against the USD last week. Euro remained supported after ECB last week said that it could scale up its quantitative easing (QE) program amidst increased risk to the region’s inflation outlook from slowing growth in China and falling oil prices.
Bank of Finland governor Erkki Liikanen, a member of the European Central Bank Governing Council on Thursday said that the ECB was committed to continue making asset purchases as part of its 60 billion Euro a month QE until the end of September, 2016.
Russian Ruble appreciated by 0.73% against the USD in the last week as central bank of Russian on Friday kept its benchmark interest rate unchanged given Ruble-driven inflationary risks and it also stated that further rate decisions will depend on the risks of inflation and cooling of the economy. Central bank of Russia has cut rates five times this year and currently the rate is at 11%.
Brazilian Real depreciated by 0.71% against the USD last week. The sharp decline came on Wednesday after Standard & Poor’s cut the country’s rating to junk. However later Real recovered on the bet that the competing ratings agencies like Fitch and Moody’s Investors Service will not immediately strip Brazil of its investment grade. This is important because some large investment funds are required to sell securities if two agencies rate it junk.
The downgrade came sooner than many in the market had expected indicating President Dilma Rousseff’s inability to regain investor confidence as political turmoil drives a growing government deficit in Latin America’s largest economy.
Asian currencies were broadly down last week. Japanese Yen depreciated by 1.33%, Philippines Peso depreciated by 0.30%, Indonesia Rupiah depreciated by 1.05%, Indian Rupee depreciated by 0.11% against USD and by 1% against Euro, Chinese Yuan depreciated by 0.3%, Malaysian Ringgit depreciated by 1.32% and Thai Baht depreciated by 0.14%.
Australian Dollar and New Zealand Dollar appreciated by 2.66% and 0.53% respectively and South Korean Won appreciated by 0.74%. Australian Dollar rose after the release of strong job data on Thursday, which showed that unemployment rate declined to 6.2% against the expectation of a decline to 6.3% and 11,500 jobs were added against expectation of 5,000.