Intro
For the first time in a long while, the forex market produced huge, multiple-percent moves, mainly with AUD and NZD pairs. Usually, this would happen due to a specific news event. The Reserve Bank of Australia or RBA delivered their expected interest rate hold.
In my analysis, there wasn’t a specific one-off event. So, the sell-offs would be a combination of various other fundamental factors. Either way, it reinforced our pre-existing bearish biases for both currencies.
Let’s review the other biases for this week, where there are some notable changes.
Market Overview
Here is a brief sentiment report for all major currencies.
US Dollar (DXY): Bearish
The U.S. dollar is in fairly bearish mode after President Trump announced steep new tariffs (in addition to those levied by China). This resulted in stock market panic and even raised suspicion of a potential recession in the future.
Furthermore, the Federal Reserve is unlikely to raise interest rates further. Finally, the unemployment rate went up slightly from 4.1% to 4.2% last Friday.
Key news to watch: Inflation rate figures and Initial Jobless Claims on Thursday.
Euro (EUR): Neutral
The Eurozone may need to deal with potential spillover effects from the ongoing US-China trade tensions which could affect some of its economy. Also, the European Central Bank is being careful in its monetary policy (with high expectations of a rate cut next week). All of this suggests modest economic growth.
British Pound (GBP): Bearish
The Bank of England is hawkish and has hinted at cutting the interest rate a few times this year. It needs to support the economy (with a 1.5% to 0.75% growth forecast recently) considering weakening household and business confidence, along with mildly rising inflation.
Japanese Yen (JPY): Bullish
The Bank of Japan is anticipated to deliver a rate hold next month. However, Japan faces some economic challenges like deflation and an aging population.
While these factors would arguably limit increases to the yen, the currency remains pretty strong compared to other currencies. This is due to its long-held safe-haven status during a time of ongoing global economic uncertainty.
Australian dollar (AUD): Bearish
The Aussie continues to face severe headwinds for several reasons. Firstly, it is tied to China which has been negatively impacted by tariff tensions with the US. The ASX 200 index has plummeted (wiping out billions in value) of late due to this reason.
Let’s also not forget the slowing domestic economy and falling commodity prices. Finally, the RBA maintained a hold on the interest rate last week and is expected to deliver a cut next month.
New Zealand dollar (NZD): Bearish
The New Zealand dollar has struggled to remain steady with the woes of its neighbouring partner (the Aussie). Like the RBA, New Zealand’s central bank needs to support economic growth, considering global trade tensions. This is one reason there is a high probability (98%) of a rate cut on Wednesday.
New Zealand’s economy is also sluggish, with weaker consumer spending and lower inflation.
Key news to watch: interest rate decision on Wednesday.
Canadian dollar (CAD): Bearish
Canada is also affected by global trade tensions, which can hurt its exports by pushing prices upward. Furthermore, slow economic activity and inflationary pressure persist.
This reality aligns with the Bank of Canada’s dovish stance and is very likely to cut the interest rate next month (as it did last month).
Swiss Franc (CHF): Neutral
The CHF remains a safe-haven currency of choice, holding its value against most major currencies amid global uncertainties. However, the Swiss National Bank (SNB) has eased its stance on monetary policy, which has limited the Swiss franc’s gains.
