Sign up to create alerts for Instruments,
Economic Events and content by followed authors
Free Sign Up Already have an account? Sign In
Quotes
All Instrument Types
- All Instrument Types
- Indices
- Equities
- ETFs
- Funds
- Commodities
- Currencies
- Crypto
- Bonds
- Certificates
Please try another search
Investors lost 37% by missing this ONE signal 😵
Read now
FX: Will Risk Appetite Overshadow Rate Decisions And Data?
ph.investing.com/analysis/fx-will-risk-appetite-overshadow-rate-decisions-and-data-93246
FX: Will Risk Appetite Overshadow Rate Decisions And Data?
By Kathy Lien | Oct 05, 2021 05:31 Investors kicked off this busy trading week with concerns about how central bank policy will shift in a broader recovery. The Dow Jones Industrial Average fell more than 300 points and, while these declines are often driven by signs of economic weakness, potential policy changes in response to recoveries can also dampen market sentiment. The rise in Treasury yields and rally in Japanese yen crosses today tell us that risk aversion was not the predominant theme. The Reserve Bank of Australia and the Reserve Bank of New Zealand have monetary policy announcements this week, and we are looking for optimism from both central banks.
The RBA is up first, with a monetary policy announcement this evening. Coming off what will most likely be a third quarter contraction, it is not expected to make any dramatic changes. However, at its last meeting it decided to proceed with tapering asset purchases. Since then we’ve seen upside surprises in PMIs, retail sales and building permits. Slowly but surely, with vaccination rates on the rise and COVID-19 “Freedom day” in sight, further economic momentum is expected. For all of these reasons we believe the RBA will be more optimistic, which could be all the Australian dollar needs to extend its gains.
The RBNZ, on the other hand, is ready to raise interest rates. Come Wednesday local time, it will be one of the first major central banks to hike rates since the start of the pandemic. Back in August, RBNZ assistant governor Christian Hawkesby said it was hard to raise interest rates on the day the country was locked down, but officials considered hiking by 50bp. With most restrictions eased, the central bank could move forward with tightening, but a smaller 25bp point is expected. As the only major central bank raising rates, NZD should outperform even if a smaller move is anticipated.
Friday’s U.S. and Canadian employment reports will also reinforce the taper plans of both central banks. Federal Reserve Chairman Jerome Powell made it clear that they are ready to reduce asset purchases, and this month’s jobs report won’t stand in the central bank's way. Job growth is expected to accelerate, with the unemployment rate most likely falling to 5%. Job growth in Canada is expected to slow slightly but, like the U.S., the unemployment rate should fall, keeping the Bank of Canada’s taper plans on track. The Canadian dollar was one of the day’s best performing currency, thanks in large part to oil, which jumped more than 2.5% to fresh three-year highs.
The U.S. dollar traded lower against all of the major currencies despite weaker share prices and higher yields. This counterintuitive price action reinforces our view that risk aversion was not the primary driver of market flows on Monday.
Related Articles
US Dollar Under Pressure Ahead of CPI This Week - Soft Print to Fuel...
By Günay Caymaz - Mar 10, 2025
The US dollar fell last week due to Trump's inconsistent trade policies and signs of a slowing economy. February's non-farm payroll data disappointed, with unemployment...
US Dollar Struggles Ahead of NFP—Why EUR/USD Dips Are a Buy
By Chris Turner - Mar 07, 2025
This week's FX price action has been dominated by two stories: the re-rating of the euro (EUR/USD) on the back of looser fiscal and tighter monetary policy expectations and the...
Is US Dollar Topping Pattern Pointing to Broader Concerns?
By Chris Kimble - Mar 06, 2025
The US Dollar Index rallied sharply into inauguration day. Since then, it’s been very weak. Could things get worse for King Dollar? Today, we share a “weekly” chart highlighting a...
FX: Will Risk Appetite Overshadow Rate Decisions And Data?
Add Chart to Comment
Confirm Block
Are you sure you want to block %USER_NAME%?
By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.
%USER_NAME% was successfully added to your Block List
Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.
Report this comment
I feel that this comment is:
Comment flagged
Thank You!
Your report has been sent to our moderators for review
Add a Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.