The beginning of the new week seems to bring a still strong US Dollar and increasing expectations for the Bank of New Zealand's decision, along with increasing divergence between the actions of different central banks in different parts of the world, which may be reflected in the quotations of individual currency pairs.
The Australian dollar remained weak on Monday and was below 0.7270 against the U.S. dollar, settling near a seven-week low, due to the growing divergence in the outlook for monetary policy between the Reserve Bank of Australia and the Federal Reserve. Fed officials suggested on Friday that a faster pace of stimulus tapering may be appropriate in the face of a strong recovery and high inflation. Meanwhile, Australian payroll data released last week reported a moderate 2.2 percent y/y increase in the third quarter, in line with analysts' forecasts and falling short of the pace that policymakers believe would warrant an interest rate increase. The RBA confirmed in its latest monetary policy meeting minutes that it is prepared to hold off on decisions until wage and inflation targets are met and that a rate hike is unlikely to take place until 2024. RBA Governor Philip Lowe also said in his recent inflation speech that current data and forecasts do not justify a cash rate increase in 2022.
Meanwhile, the other geographically close currency AUD, that is, appears to have stabilized around 0.7000 against the USD on Monday, settling near recent lows after a sharp depreciation against the USD on Friday, likely driven by hawkish comments from Federal Reserve officials and concerns about pandemic-related restrictions and limitations in Europe. Additionally, the Reserve Bank of New Zealand is widely expected to raise interest rates by at least 25 basis points at its monetary policy meeting on November 24 amid the highest inflation in a decade and record low unemployment, and investors are also bracing for a more aggressive 50 basis point rate hikes as the country reopens and continues to recover from COVID restrictions. Analysts suggest that a rate hike of just 25bp by the RBNZ risks a possible further fall for the New Zealand currency.
In contrast, the overall Dollar Index appears to have strengthened above 96 points on Monday, with the US currency trading near 16-month highs against the Euro, seems to strengthen by its safe-haven status following the surge in COVID-19 cases in Western countries and the re-imposition of restrictions in Europe. The dollar also strengthened against the Australian and Canadian dollars as commodity-linked currencies came under pressure from falling oil prices. Moreover, Federal Reserve officials Richard Clarida and Christopher Waller proposed on Friday that a faster pace of stimulus reduction may be appropriate in the face of a faster recovery and high inflation, potentially providing additional support to the dollar. Money markets now expect a Fed funds rate hike in June 2022, followed by two more hikes in September and December.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
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