- BoC’s rate expected to rise
- Expected rate increase by the ECB
- OPEC+ producers to adjust production and support prices at a meeting later in the day
Global stock markets ended the week with significant losses as investors pulled their money out of risky investments due to worries about the economy and central banks that appear prepared to continue fighting inflation even if doing so results in recessions.
After the US non-farm payrolls report, which showed a gain of 315,000 jobs in August, hit the wires, US stock markets opened higher on Friday. Even though wages didn’t increase as much as anticipated, that was a little bit higher than the 315k Bloomberg consensus forecast.
The wage data improved the outlook for US inflation, which helped breakeven rates for gold. XAU/USD increased on Friday, but the price of the yellow metal fell by nearly 1.5% over the course of the week.
The Fed’s perceived rate path was made easier by the slowing wage growth. Over the lengthy US holiday weekend, traders seemed cautious about holding risk. As bond traders abandoned European debt, yields soared across the Euro Area.
At its policy meeting on Thursday, the European Central Bank is predicted to raise interest rates by 75 basis points, with overnight index swaps (OIS) indicating a 62.8% likelihood of the jumbo increase.
Prices for Dutch European natural gas plunged on Friday, nearly doubling the week’s loss as supply concerns subsided.
The European Union’s gas storage increased to over 80% as of August 31 according to GIE’s AGSI data, putting the 27-member bloc on track to meet its storage goals before the winter, when energy demand will rise.
The impending rate increase by the ECB is expected to restrain demand.
On Monday, oil prices increased by more than $1 a barrel as investors anticipated potential actions by OPEC+ producers to adjust production and support prices at a meeting later in the day.
The Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, may decide to maintain current output levels or even reduce production to support prices, despite supplies remaining tight, at the OPEC September meeting later on Monday.
The Canadian Dollar fell against the US dollar, weighed down by falling crude oil prices. During Friday’s trading, USD/CAD was poised to close at its highest daily level since November 2020.
According to cash market pricing, the Bank of Canada is expected to increase its benchmark lending rate to 3.25%. That would raise the BoC’s rate above what Tiff Macklem, the governor of the BoC, considers to be the neutral rate (2% to 3%).
If the rate is raised by 75 basis points, it will be above neutral, and the Canadian economy will suffer as a result. In the absence of a significant increase in oil prices, the Canadian dollar is likely to fall further.
In other news, the Reserve Bank of Australia (RBA) will announce an interest rate decision on September 6. Last week, the Australian dollar fell around 1% as iron ore prices in China fell nearly 10%, bringing the metal ore to its lowest level since November 2021.
Rate traders have reduced their expectations for the Australian central bank to maintain its aggressive stance beyond next week’s meeting, which is expected to result in a 50-bps hike.
The country’s inflation rate is still 6.1% above the target, so the RBA may need to accelerate the pace of tightening. China continues to be a significant barrier for Australia and the larger APAC region. As Covid-19 cases grew last week, several cities went into lockdown.
TECHNICAL FORECASTS:
British Pound:
Pound selling has only picked up steam and is expected to last into the following week. While the EUR/GBP flatters the beleaguered euro, cable declines to levels not seen in 37 years.
US Dollar Technical Forecast:
The US dollar increased by 0.7%, marking a third weekly gain, as DXY approached uptrend resistance at the beginning of the month. The levels on the weekly technical chart are significant.
Canadian Dollar Forecast:
Key technical areas are being approached by a number of Canadian Dollar crosses as sentiment and USD strength become more pronounced. Watch out for these levels.
Gold Price Forecast:
Throughout the year, Gold and Silver have taken significant hits as the USD has continued to strengthen. This week, the $1700 level in gold served as important support, but will it last long?
Japanese Yen:
With currency pairs like USD/JPY, EUR/JPY, AUD/JPY, and CAD/JPY either pushing past or pressing resistance, the Japanese Yen is under pressure. Is the Yen in for more suffering in the future?
S&P 500, Nasdaq 100, Dow Jones Week Ahead:
Stocks had a terrible week, with the hope that had appeared on Thursday fading on Friday. Equities continue to be vulnerable due to a hawkish Fed.
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