Global bond sell-off boosts US dollar
The US dollar paused near 18-month highs on Friday after a strong week for the world’s most traded currency as bond yields continue to support the greenback and weigh on risk sentiment.
The USD index gained 0.7% for the week.
Measured as a whole, global bond yields have climbed to their highest levels since 2007, driven by a sharp rise in US Treasury yields as investors respond to persistent inflation, resilient growth, and expectations that US interest rates may remain higher for longer.
The greenback was also helped by a still-strong US growth story.
The S&P Global Flash US composite PMI rose to 58.4 in September, its strongest reading in more than five years, with both services and manufacturing activity strengthening. The report also showed firmer hiring and rising input costs, reinforcing the view that inflation pressures remain elevated.
Reserve Bank of Australia widely expected to hike
The Australian dollar was one of the hardest-hit currencies last week, with AUD/USD down 1.4%.
This week, all eyes are on Tuesday’s interest rate decision.
Reserve Bank of Australia Governor Michelle Bullock reinforced the central bank’s inflation-fighting stance last week, warning inflation remains too high and could become embedded if global supply shocks persist.
With inflation risks elevated and the labour market still relatively resilient, markets expect the RBA to raise rates on Tuesday, which would take the cash rate to 4.60%, its highest level in more than a decade.
US jobs report and eurozone inflation in focus
The key event this week is Friday’s US jobs report. Recent weeks have seen expectations for further Federal Reserve tightening increase following September’s 25bp rate hike.
A strong employment result would reinforce the case for higher US interest rates, although inflation remains the key driver of the Fed’s policy outlook.
In Europe, preliminary September inflation data are also due. Headline inflation is expected to rise to 3.5%, moving further away from the European Central Bank’s 2% target. A stronger-than-expected result would increase the likelihood of another ECB rate hike later this year.
Aussie dollar flashes red
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 28 September to 3 October
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*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.
