This is an important week for investors. Over the past few months, the Federal Reserve has hinted at the need to reduce asset purchases. Other central banks in the U.K., Canada, and New Zealand already set the stage for tapering so it would be natural for the Fed to follow suit. The Federal Reserve’s annual Jackson Hole symposium would be the perfect venue for the central bank to prepare the market for asset reductions but the question is will they.

Based on the sell-off in the U.S. dollar, new highs for S&P 500, and decline in 10-year Treasury yields on Monday, investors appear skeptical. In the last 24 hours, we’ve seen reports of deterioration in manufacturing and service sector activity in all corners of the world including Australia, the U.K., the Eurozone, and the U.S. The Delta variant is posing a risk to the global recovery and some investors believe that the Fed could wait until September to signal taper. By waiting a few more weeks, there will be more information on the economic impact of delta and recent shifts in inflation trends (oil and lumber prices have come down sharply). Also, while the labor market is strong, the Fed gets to see one more jobs report before the September FOMC meeting. There are two more policy meetings beyond September (in November and December) so if they wanted to tread carefully, the Fed could wait a few more weeks before providing clear guidance on when they’ll start reducing asset purchases.

The best performing currency today was the Canadian dollar which is not a surprise considering the 6% rise in oil prices intraday. After falling for 7 straight days, crude prices rebounded sharply. Bargain hunting and a weaker dollar may have contributed to the recovery but ultimately crude fell too far too fast and when that happens a relief rally becomes very likely. Canadian fundamentals are sound with a central bank that has formally announced its plan to wind down bond buys, inflation on the rise, and a newly vaccinated population (over 75% of eligible adults have received at least one shot).

Euro and sterling also traded higher despite mixed PMIs. In the euro area, manufacturing and service sector activity slowed, driving the composite PMI index down to 59.5 from 60.2. While this deterioration was slightly more than anticipated, it represented only a small dip from July’s two-decade high. In the U.K., manufacturing activity accelerated but service sector activity slowed. The elimination of COVID-19 restrictions should have boosted economic activity but supply chain and staffing issues caused the PMI composite index to drop for the third month in a row to a six-month low. None of this prevented EUR and GBP from rallying because risk appetite was strong.

The Australian and New Zealand dollars soared despite ongoing lockdowns. NZ Prime Minister Arden said the country’s lockdown will at minimum be extended to Friday and in Auckland in particular to the end of the month. Australian Prime Minister Morrison encouraged the country to get vaccinated – saying lockdowns could become “a thing of the past” once 80% of the adult population is vaccinated but with only 24% fully vaccinated, there’s a long road ahead. NZD/USD will be in focus tonight with New Zealand retail sales due for release. The second quarter was a strong one for New Zealand and the latest consumer spending report should reflect that.