The Week Ahead – Risk Appetite Grows In Hopes Of Inflation Peak

USDCAD consolidates over jobs divergence

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The Canadian dollar steadies as a deceleration in job growth may lower rate hike expectations. Contrasting US and Canadian jobs data might have become the main driver of the loonie’s weakness. While a surge in US hiring could rekindle the Fed’s aggressive approach, lacklustre performance in its northern neighbour might lower the chance of oversized rate hikes by the Bank of Canada down the road. Meanwhile, the price of oil has been struggling due to global demand uncertainty, casting a cloud over the commodity-linked currency. 1.2520 is an important floor and the previous support at 1.2950 has turned into resistance.

NZDUSD rallies as markets go risk on

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The New Zealand dollar soars ahead of further RBNZ tightening. Markets have bet on another 50bps this week by the central bank. According to a recent RBNZ survey inflation may slow down over the coming year. There is growing speculation that the cash rate could peak later this year. In the meantime, hawkish rhetorics and improved risk sentiment would support the kiwi. China’s record trade surplus in July aided by solid export performance suggests that the world economy has remained resilient, offering tailwinds to the commodity-linked currency. The pair is heading to June’s high at 0.6570 and 0.6300 is the closest support.

XAUUSD recovers against a softer dollar

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Gold may struggle as Fed officials call for more rate hikes to come. Softer US consumer prices sent the greenback into retreat, leaving more room on the upside for gold. Traders hope that peaking inflation could prompt the Fed to lift its feet off the pedal by as soon as September. Less aggressive rate hikes would mean a slower rise in real yields which would benefit the non-yielding metal. The downside risk would be the US central bank continuing to press for its fight against inflation, putting an effective cap on bullion’s recovery. The price bounced off the major demand zone at 1680 and 1860 from the June sell-off is key resistance.

NAS 100 hits 3-month high as risk appetite returns

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The Nasdaq 100 consolidates as investors reassess the Fed’s next move. There has been much noise about an upcoming recession, but data continue to suggest otherwise. The US labor market has recovered back above its pre-pandemic level and is offering a strong signal that the economy is still in sound shape. Markets tend to price in expectations ahead of actual facts, and the lack of tangible recessionary signals combined with decent corporate earnings could trim selling interests. Any dovishness from the Fed could be seen as positive by the market. A break above 13550 may open the door to 15000 and 12600 is the closest support.

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