Forex Weekly Review: The U.S. dollar stands out! The Reserve Bank of Australia "doves shrink", the Australian dollar fell the worst!

The U.S. dollar index rose by 0.55% to 92.62 this week. The market generally focused on the Fed's reduction in the time it takes to buy bonds. The risky sentiment in the market has cooled, providing support for the strengthening of the U.S. dollar. In other currencies, European currencies all fell, and the euro fell 0.56%. , The pound fell 0.23%; in commodity currencies, the Australian dollar fell 1.39%, the New Zealand dollar fell 0.63%, and the Canadian dollar fell 1.33%. The yen fell 0.2% this week.

The dollar stopped falling and rebounded this week

The U.S. dollar index has rebounded from a one-month low hit last Friday, and investors are concerned about when the Fed may begin to reduce asset purchases.

However, the U.S. dollar has not yet established a strong trend, and investors are waiting for new clues to determine when the Fed may begin to reduce its bond purchase plan and eventually raise interest rates.

Erik Nelson, a macro strategist at Wells Fargo Bank in New York, said: "The most important thing for me is when the Fed will raise interest rates. Unfortunately, we will not know the answer for a while."

Citi Research analysts reported on Thursday that September 22 is particularly important for gold. He was referring to the date of the next monetary policy announcement by the Federal Reserve.

Jackson Hole’s results are neutral, the August non-agricultural employment data is bleak, and the Delta virus is raging. After these events, we have postponed the expected time point for the Fed to announce its balance sheet reduction from September to November, but it may be It will not cut debt purchases until December.

However, according to a report in the Wall Street Journal on Friday, Fed officials will reach an agreement at the September 21-22 meeting to reduce the scale of bond purchases starting in November.

Goldman Sachs analyst Jan Hatzius said that after the Wall Street Journal analyzed that the Fed will reduce its bond purchases (Taper) in November, we raised the possibility of the Fed’s announcement of Taper in November from 45% to 70%; the Fed’s December announcement of Taper The possibility of lowering from 35% to 10%; still expected due to the increased risk of the delta mutant strain, the Fed has a 20% chance of delaying the announcement of Taper to 2022.

The general risk aversion in the market this week has also supported the strengthening of the dollar.

(Daily chart of the US dollar index)

Fed officials generally support the reduction of debt purchases during the year

Although the chairman of the Federal Reserve has always played a dovish role, it is basically a certainty that the Federal Reserve will reduce debt purchases during the year.

Although Powell's speech at the Jackson Hole Global Central Bank Annual Meeting was interpreted as a dovish by the market, he still admitted that if the economy meets expectations, it is appropriate to start reducing debt purchases during the year, but he did not give a specific timetable.

At present, the Fed generally supports the voice of reducing debt purchases during the year. This has become the main theme of the moment, and it has also continued to put pressure on the gold price bulls.

Cleveland Federal Reserve Chairman Meester said on Friday that she still hopes that the Fed will begin to reduce the scale of asset purchases this year.

Meester told reporters, “I don’t think the August employment report has changed my view, that is, we have made substantial further progress. ” She said that she would be happy to see the Fed start to shrink this year and gradually end purchases in the first half of next year. debt.

Fed Governor Bowman said at an online event organized by the American Bankers Association on Thursday: "I am still optimistic about the ongoing expansion. Although some recent data may not be as strong as we expected, we still see Economic growth is very strong. We are very close to the goal of maximizing employment... If the data is as I expected, it may be appropriate to start reducing the asset purchase plan this year. "

Bowman said that disappointing data in a given month should not be taken too seriously.

Atlanta Fed President Bostic expressed the same view on Thursday. He believes that the Fed will reduce asset purchases this year, although he does not expect a decision at this month's central bank meeting.

Bostic said, "Because of the strong data in the early summer, I am really inclined to advocate the start of'cutting debt purchases' earlier than many people expected."

"The weaker data we have seen recently means that there may be opportunities for adjustments in this area, but I still think that sometime this year (slowing down asset purchases) is appropriate."

Chicago Fed Chairman Evans is still more cautious. He believes that the US economy "has not been out of the predicament." Despite strong economic growth and the hope of vaccines, challenges including supply chain and labor market bottlenecks still exist.

Evans did not express specific views on the economic situation or its policy orientation, but he previously stated that he would like to read a few more monthly employment reports before he supports slowing the pace of $120 billion in debt purchases per month.

The European Central Bank announces that it will reduce debt purchases in the next quarter, and the euro is still down

The European Central Bank held a regular monetary policy meeting on the 9th and decided to continue the emergency asset purchase plan with a total scale of 1.85 trillion euros, but it will moderately slow down the pace of bond purchases, and at the same time comprehensively raise its expectations for inflation in the euro zone. Experts pointed out that, given that the mid-term inflation outlook in the Eurozone is still below the target set by the European Central Bank, large-scale debt purchases will continue even after the emergency asset purchase program ends.

The European Central Bank decided on the same day to moderately reduce the monthly bond purchases of the emergency asset purchase plan. This decision did not surprise investors. The prices of medium and long-term government bonds in the major Eurozone economies were basically not affected after the news was announced.

The European Central Bank stated that the Eurozone inflation rate in 2021 is expected to exceed the target of 2%. Although the inflation rate in the next two years will be higher than the previous forecast, it will still be significantly lower than the target.

On the same day, the European Central Bank also substantially raised its expectations for economic growth in the euro area this year, and predicted that economic output in the euro area will exceed the level before the outbreak of the new crown by the end of this year.

European Central Bank President Lagarde emphasized in answering a reporter’s question that day that a moderate slowdown in debt purchases does not begin to gradually reduce the asset purchase plan, but to readjust the stimulus in accordance with the improvement of fundamentals.

Bastian Heppele, an economist at the German private bank Lamper Bank, said that although the macroeconomic environment has improved, the epidemic continues to bring high uncertainty. Therefore, the European Central Bank will insist that it is necessary to support the economy with favorable financing conditions, and will still buy a lot of debt in 2022.

The market predicts that the European Central Bank will make a major decision in December. By then, the European Central Bank will conduct a comprehensive assessment of its bond purchase plan and observe the impact of the delta virus on the economy. At the same time, it will have a better grasp of the direction of the Fed's withdrawal from the stimulus plan. In this way, the European Central Bank is more likely to send a clear signal.

The European Central Bank announced the reduction of the euro on the day the euro ushered in the only positive line this week. As the opponent of the dollar, the euro and the dollar are negatively correlated. The euro fell 0.56% against the dollar this week.

(Daily chart of the euro against the dollar)

The Bank of Canada stays on hold and still expects the recovery to strengthen in the second half of the year

The Bank of Canada kept interest rates unchanged on Wednesday and said that after experiencing a shocking contraction in the last quarter, economic growth is expected to strengthen in the second half of the year , but the fourth wave of viral infections and supply bottlenecks may drag the recovery.

As expected, the Bank of Canada kept the key interest rate at a record low of 0.25% and maintained its current quantitative easing program unchanged. In less than two weeks, Canada will hold a federal election.

The Bank of Canada said in a statement that “economic growth is still expected to strengthen in the second half of 2021, but the fourth wave of viral infections and continued supply bottlenecks may drag the recovery.”

The central bank maintained its guidance unchanged that the idleness in the economy will be absorbed sometime in the second half of 2022, despite the unexpected contraction of the economy in the second quarter and a weak start to the third quarter.

Scotiabank’s head of capital market economics Derek Holt said, “I have noticed a sign of cautious optimism that they are ready to ignore the period of weakness that they are going through.”

He added: "For now, they still plan to raise interest rates for the first time...it will happen sometime in the second half of 2022. "

Bank of Canada Governor McCallum said on Thursday that the Canadian economy is approaching the tipping point where quantitative easing (QE) is no longer needed to continue to increase stimulus, but it has not yet arrived.

McCallum also stated for the first time that when the Bank of Canada begins to reduce its stimulus, it will raise interest rates first and then control its holdings of public debt.

McCallum said that once new stimulus measures are no longer needed, the first step will be to enter the reinvestment phase of the quantitative easing program, during which the central bank will only purchase enough bonds to replace bonds that are about to mature- approximately every week 1 billion Canadian dollars (791 million US dollars). This will maintain the stimulus, but will not add new stimulus measures.

Analysts said this means that if the Bank of Canada reduces its weekly bond purchases from the current 2 billion Canadian dollars to 1 billion Canadian dollars, as expected, the reinvestment phase may begin as early as next month.

Canada's August job creation is slightly lower than expected

Statistics Canada released data on Friday showing that 90,200 new jobs were created in Canada in August, slightly lower than expected, but the unemployment rate fell to 7.1%, the lowest level since the pandemic.

Analysts had predicted that in August, employment is expected to increase by 100,000, and the unemployment rate is expected to drop to 7.3%. Including August’s increase, Canadian jobs are currently less than 1% below pre-pandemic levels. But the working hours are still 2.6% lower than the February 2020 level.

Andrew Kelvin, chief Canadian strategist at TD Securities, said, "At first glance, adding more than 90,000 new positions should be pretty good."

He said, " The worrying thing is that there has been almost no change in working hours throughout August ." This may disappoint the Bank of Canada.

Full-time jobs increased by 68,500 and part-time jobs increased by 21,700. The service industry increased by 92,900 jobs, mainly driven by the accommodation and food service industries. The commodity sector saw a net decrease of 2,600 jobs, as the decline in agriculture and other industries overwhelmed the growth in the construction industry.

The US dollar rose 1.33% against the Canadian dollar this week, and the general risk aversion in the market hit the Canadian dollar.

(Daily chart of USD/Canadian dollar)

The Reserve Bank of Australia kept interest rates unchanged and insisted on reducing bond purchases, but extended its bond purchase plan

The Reserve Bank of Australia confirmed on Tuesday its plan to reduce bond purchases, hoping that once a rapid vaccination campaign helps ease the epidemic lockdown, the economy will rebound quickly.

The Fed stated that it would reduce weekly bond purchases by A$1 billion to A$4 billion , which surprised some people. However, the Reserve Bank of Australia extended its bond purchase plan to at least mid-February next year. This move was seen as a bias. Dovish concessions.

The Reserve Bank of Australia Chairman Lowe acknowledged the damage caused by the epidemic, but maintained an optimistic view of the economic outlook.

He said: "The Delta outbreak is expected to be delayed, but it will not disrupt the recovery. With the further increase in vaccination rates and the relaxation of restrictions, the economy should rebound."

After the slow start, the pace of vaccination has accelerated significantly. 38% of the Australian population over 16 years of age have been fully vaccinated, and 63% have received at least one dose of the vaccine.

The federal government plans to relax restrictions after 70% of adults are vaccinated, and completely lift the mass lockdown by 80%, although not all states agree with this vision. Currently, its plan is to achieve full vaccination of 70% of the population by October and 80% by November.

Lowe pointed out that the expected economic recovery time and speed are uncertain, and warned that it may be slower than the recovery earlier this year.

Su-Lin Ong, head of Australian fixed income strategy at RBC Capital Markets, said, “This is a modest reduction because they have pledged to keep the pace of bond purchases of A$4 billion for at least six months.”

"The fact that they are happy to reduce debt purchases, but plan to extend this measure, shows that they are still injecting a lot of stimulus into the financial system ."

In the longer term, the Reserve Bank of Australia once again stated that it is unlikely to actually raise interest rates before 2024, when it hopes that wage growth and inflation will eventually return to acceptable levels.

The Reserve Bank of Australia’s "dovish reduction" plan caused the Australian dollar to plummet by 0.71% on Tuesday. The market is more concerned about the impact of the Reserve Bank of Australia's extended bond purchase time on the market.

The Australian dollar fell 1.39% against the US dollar this week, and the strength of the US dollar hit the trend of commodity currencies.

(Australian dollar against the dollar daily chart)

The Bank of England is expected to start raising interest rates in the fourth quarter of 2022

The survey shows that the Bank of England is expected to raise interest rates before the end of 2022, earlier than previously estimated, and as the economy recovers steadily from the impact of the epidemic and high inflation, the interest rate hike may be even earlier.

Like other central banks around the world, the Bank of England cut interest rates at the worst of the epidemic and resumed quantitative easing measures. But with the widespread promotion of vaccination, the daily death toll has fallen, and most of life in the UK has returned to normal.

According to a survey conducted on September 6-9, the Bank of England is expected to raise interest rates from the current record low of 0.10% to 0.25% in the fourth quarter of 2022. The August survey showed that interest rates are expected to remain unchanged until 2023.

If the forecast is accurate, then the Bank of England will lead the Fed in raising interest rates. According to another Reuters survey, the Fed is not expected to raise interest rates until 2023, although it is expected to announce plans to reduce asset purchases this month.

Kallum Pickering of Berenberg Bank said: “Although the uncertainty of the new crown epidemic is still lingering, and the global supply side is severely chaotic, it will temporarily restrain actual output growth, but as a part of the overall developed world theme, the United Kingdom The overall situation is undoubtedly positive."

"Fundamentals are healthy, coupled with renewed confidence in policymakers' ability to stimulate demand, will ensure this."

The Governor of the Bank of England Bailey said that last month the number of central bank policy makers who held two different views was evenly matched. One view believed that the minimum conditions for considering interest rate hikes had been met, and the other believed that the economic recovery was not strong enough.

Bailey said that his camp believes that as the UK economy continues to recover from the nearly 10% pandemic collapse in 2020, the minimum conditions for considering interest rate hikes have been reached, but this is not enough to justify interest rate hikes.

Michael Saunders, the most "hawkish" official at the Bank of England, said that even if interest rates are raised next year, the rate will be limited .

Saunders said that if economic development is in line with expectations, then the idea that interest rates will rise around next year may be correct. Saunders was the only dissident on the Monetary Policy Committee at the Bank of England’s August meeting. He said that due to the pressure of global costs and domestic production capacity, the current policy stance of the Bank of England faces the risk of "inflation will continue to exceed the 2% target".

However, Saunders said that if the key interest rate is indeed raised, the rate will not be too great, because this year's house price increase beyond the target is expected to be temporary, and the level of neutral interest rates has fallen sharply in the past 20 years.

The pound fell slightly by 0.23% this week. Against the backdrop of the strength of the US dollar, the pound appears to be stronger than the currencies of other major developed countries.

(The British pound against the U.S. dollar daily chart)