U.S. Dollar Toward Tapering

On Monday, the dollar was trading at multi-week lows as Federal Reserve Chair Jerome Powell sketched out a slower-than-expected path to rate hikes. At the same time, a hurricane pounding oilfields in the Gulf of Mexico buoyed oil-exposed currencies. The dollar plummeted to a two-week low versus the euro on Friday as Powell managed to hint at the end of emergency monetary policy settings without frightening markets. It may be prudent to begin slowing the pace of asset purchases this year, Powell said in a speech, citing employment as the deciding factor.

However, he stated that raising rates would require the economy to satisfy a different and significantly more severe test. Traders took advantage of the wiggle room in the rates outlook and sold dollars. At the same time, Treasury yields fell. The dollar index finished Friday with a 0.4 percent loss and continued up to where it left off on Monday, at 92.670.

The Australian and New Zealand Dollars Gained

The euro rose 0.4 percent to slightly above $1.1800, where it remained on Monday. At the same time, the yen passed its 20-day moving average and remained at 109.78 per dollar. Powell was evasive on the timing of tapering. As a result, the market has adopted a Goldilocks view of the Fed: stimulus will be withdrawn, but not so swiftly as to suffocate the recovery.

The Australian and New Zealand currencies also maintained significant Friday advances. The kiwi broke over its 50-day moving average. Both registering weekly gains of more than 2%, they’re most excellent versus the dollar in about ten months. The Australian dollar recently purchased $0.7313, while the New Zealand dollar last bought $0.7007. However, both remain well below chart resistance levels of $0.7426 and $0.7100, respectively. Sterling gained 0.4 percent on Friday and was trading at $1.3764 on Monday. In other news, the oil-exposed Norwegian crown climbed alongside oil prices. It reached a seven-week high of 8.6971 per dollar as Hurricane Ida ravaged Louisiana. The Canadian dollar maintained its Friday gains.

COVID Influence

The focus now shifts to the release of US labor statistics on Friday for the next signal on the timing of asset purchase tapering. Measures to contain the spread of COVID-19 in New Zealand, where an outbreak delayed an expected interest rate hike. On Sunday, New Zealand reported 83 new local cases. It hinted at a possible tightening of restrictions, while predictions of an October hike have firmed to around 80%. 

According to Commonwealth Bank of Australia economist Kim Mundy, Friday’s non-farm payrolls in the United States, along with COVID patterns, will make or break the case for announcing tapering at the (Fed’s) September meeting. We believe that additional 800,000 jobs should be enough to declare tapering. We expect the dollar to regain some of its lost value this week, as market players remain concerned that COVID may impede the global economy.