Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Markets driven by 50bps hopes
The US dollar ended Friday near 14-month lows ahead of this week’s highly anticipated Federal Reserve decision.
The USD index closed only 0.6% away from the lowest level since July 2023 on Friday with markets pricing in 37.3bps worth of cuts for this week – evenly split between a 25bps and 50bps cut.
Hopes for rate cuts saw US sharemarkets stack on further gains on Friday with the Dow Jones, up 0.7% and the S&P 500, up 0.5%, both back near all-time highs as they recovered from last month’s sell-off. The tech-focused Nasdaq gained 0.7% but remains some distance from previous highs.
In FX markets, the US dollar’s losses were mostly confined to Asia, with the USD/JPY, down 0.7%, leading markets lower.
The USD/CNH fell 0.3% while the USD/SGD also fell 0.3% as it closed below 1.3000 for the first time since 2014.
In other markets, the USD was mixed, with AUD/USD down 0.3% and NZD/USD down 0.4%.
The EUR/USD and GBP/USD were both broadly flat.
US data to be watched
Away from the Fed decision, US data will also be closely watched, with US economic releases mostly missing expectations so far in the second-half of the year (the Citi economic surprise index was most recently -22 in August).
The September Empire State Manufacturing Index, due at 10.30pm tonight, looks likely to decline by 1.3 points to -6.0.
Since December 2023, the headline index has been in contractionary zone; however, it has just stabilized.
The headline figure is likely to stay within its current range, but the index has a tendency to mean-revert.
The USD index remains pressured, below key moving averages with momentum not yet stretched, but the outcome for the week is likely to be driven by the reaction to the looming Fed announcement.
Fed, BoJ will be key this week
FX markets will be driven by a series of central bank decisions this week, with policy announcements due from the Federal Reserve, Bank of Japan, Bank of England and Norges Bank.
The Federal Reserve’s decision on Thursday (APAC time) will also be a key focus for markets.
The Bank of Japan’s decision on Friday will be closely watched. Any shift in the BoJ’s ultra-accommodative stance could have significant implications for the Japanese yen.
In other markets, important data releases include US retail sales and industrial production on Tuesday, UK CPI on Wednesday, and Australian employment figures on Thursday.
USD faces losses in Asia
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 16 – 14 September
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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