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US Open Note – Stocks Static and Yields Fail to Aid Dollar

OPEC and global energy risks; Central Banks and NFP report are drivers of the week

Market uncertainty lingers but the greenback’s haven appeal remains muted, as a global energy crisis threatens recoveries across the globe. Stocks are slightly on the back foot to start the week and the dollar remains feeble as the 10-year yield provides no support. Uncertainty out of China around a property developer giant and rising energy prices, with the UK being hit the worst, maybe weighing on market sentiment. Global supply bottlenecks are not helping economies at this point either.

The US dollar index has fallen below the 94.00 mark, which has aided the euro to steer above the $1.1600 handle after recently finding its feet around the $1.1560 level. Moreover, weakness in the greenback has floated the pound towards the $1.3600 barrier.

This week’s focus regarding the greenback is due to be centered around the NFP payrolls report for September, which seems to be receiving growing pressure due to its relationship with shifting Fed officials’ assessment on whether to announce the tapering launch in November’s meeting and when the taper timeline should begin.

Fed officials will shift away from their bond buying support when clear progress is being made on inflation and employment, and thus a reasonably strong NFP jobs report this Friday could aid the Fed to solidify reasoning behind starting the tapering process.

Good figures for this week’s NFP could significantly aid the expectations of a November announcement on tapering, but weaker results may cause the Fed to highlight concerns around employment and maybe even delay a little longer the withdrawing emergency pandemic support for the economy, again taking into consideration the elephant in the room, inflation.

The USD/CHF pair has dipped past the 0.9280 trough down to 0.9250, while USD/JPY is largely unchanged just above the 111.00 hurdle.

Gold’s recent drop is consolidating around the $1,750 mark.

OPEC strikes, and commodity currencies firm

The Organization of Petroleum Exporting Countries (OPEC) and the Joint Ministerial Monitoring Committee (JMMC) have recommended proceeding with a 400K per day hike in production, which is supportive to rising oil prices and has pushed WTI oil futures above the $77.00 a barrel mark.

USD/CAD has glided below the C$1.2600 mark and is dipping past the C$1.2592 trough. Higher oil prices as well as a resilient economy, despite the threatening delta variant, has helped the Canadian dollar retain its potency, which has steered the USD/CAD pair lower. Later in the week, Canadian PMI and employment data are due, and the results may counter or exacerbate any dollar mishaps around the NFP jobs report, and thus volatility in the pair. Canadian August building permits came in slightly softer at -2.1% than the forecast of 3.3% but better than July numbers of -4.1%.

The antipodean currencies are slightly capitalizing on dollar weakness, with the kiwi performing marginally better at 0.6975 than the aussie, which is at 0.7290. This week the RBNZ and the RBA are due to deliver their outcomes of their decision on interest rates. Expectations of a more hawkish RBNZ may disappoint markets, as concerns of the rise in infections may hamper the central bank’s decision on the pace and size of expected rate hikes. Such a scenario could see the kiwi surrender some of its latest gains. The more wary RBA is likely to leave interest rates unchanged until February when they will reassess their bond purchases, and thus aussie volatility could remain centered around dollar strength and related commodity prices.

Later at 23:30 GMT, Japan’s core yearly CPI is scheduled, while at 00:00 GMT, the New Zealand ANZ monthly commodity prices will be released.

Then at 00:30 GMT, Australian trade balance and monthly retail sales are due.