The DXY
On Wednesday, the dollar index remained below the 106 mark, having declined by more than 5% in the past five trading sessions. This decline can be attributed to the cautious stance taken by Federal Reserve officials, who have expressed dovish views.
Specifically, Atlanta Fed President Raphael Bostic, in remarks made on Tuesday, emphasized that the central bank may not need to implement further interest rate hikes to bring inflation back in line with the 2% target. Minneapolis Fed President Neel Kashkari echoed similar sentiments later that day. Consequently, the prevailing market sentiment is that the Federal Reserve will maintain the current interest rates at the upcoming November policy meeting.
Investors are eagerly anticipating the release of the minutes from the central bank's most recent meeting, which is scheduled for Wednesday. Additionally, they are keeping a close eye on crucial inflation data to be released on Thursday. These two sources of information will serve as guiding factors for the future direction of monetary policy.
In the midst of these economic developments, investors are also closely monitoring the ongoing conflict between Israel and the Palestinian Islamic Group Hamas. This geopolitical tension had a notable impact on financial markets on Monday, briefly causing an increased demand for the US dollar as a safe-haven currency.
The EURO
The euro has staged a recovery, surpassing the $1.06 threshold, distancing itself further from the ten-month low of $1.0447 recorded on October 3rd. This rebound in the euro's value came as investors absorbed the dovish messages delivered by policymakers at both the Federal Reserve and the European Central Bank (ECB).
Federal Reserve officials indicated their concerns that the upward movement in long-term Treasury bond yields might deter the US central bank from pursuing additional interest rate hikes.
On the European front, ECB Vice-President Luis de Guindos, speaking on Monday, acknowledged the expectation of a continued downward trajectory in inflation. However, he also underlined the need for caution, primarily due to the uncertainties stemming from fluctuations in oil prices related to events in the Middle East.
Simultaneously, Francois Villeroy de Galhau expressed confidence that inflation would eventually reach the ECB's target of approximately 2% by the close of 2025, despite the recent violence in Israel.
AUSSIE
The Australian dollar strengthened beyond the $0.64 level, maintaining recent gains in the midst of a general weakness in the US dollar. This was largely driven by dovish comments from Federal Reserve officials, which reduced the likelihood of another US interest rate hike in November.
Furthermore, the Australian dollar recovered from earlier losses attributed to risk-averse trading sentiments sparked by the unexpected attack by Hamas on Israel over the weekend.
On the domestic front, investors analyzed data indicating improved Australian consumer sentiment in October, while business confidence remained steady for the third consecutive month in September.
In terms of monetary policy, the Reserve Bank of Australia, in line with broad expectations, kept its cash rate unchanged at 4.1% during its October policy meeting. However, it's worth noting that the board expressed concerns about persistently elevated inflation levels and suggested the possibility of further tightening measures being necessary to bring inflation back into the target range of 2% to 3% by late 2025.
Swissie
The Swiss franc has shown resilience by surging beyond the 0.91 per USD mark, rebounding from the six-month low of 0.92 recorded on October 3rd. This recovery was driven by a combination of factors, including the ongoing assessment of monetary policies by both the Federal Reserve and the Swiss National Bank (SNB).
The heightened geopolitical instability in the Middle East, particularly the military conflict between Israel and Gaza, prompted investors to seek refuge in the Swiss franc's safety.
Furthermore, the SNB has been actively reducing its foreign exchange reserves, marking a departure from the multi-decade trend of reserve accumulation that persisted until 2022.
However, it is essential to note that the Swiss franc has experienced a decline of over 5% since achieving a seven-year high in July. This decline is mainly attributed to the divergence in monetary policies between Switzerland and the United States.
The New Zealand Dollar
The New Zealand dollar was trading around $0.6028 on Wednesday, weakening for the first session in six after hitting its highest level in two months of $0.6049 the day before, amid growing caution ahead of key data from leading trading partner China this week, which include CPI and trade figures for September.
Traders also took a guarded stance prior to a general election in the Pacific nation on Saturday, October, 14th, with local media predicting the possibility of a hung parliament or a second election. In the meantime, the RBNZ last week left cash rates unchanged for the third straight meeting at 5.5% as inflation continued its downward trajectory following a cumulative 525bps increase during the past two years.
Still, robust tourist arrivals in New Zealand during August capped the decline, along with a report from Bloomberg News that Beijing is preparing to unleash a new round of stimulus as it attempts to meet the official growth target of around 5% this year.
Commenti