The Week Ahead – Selling In Risk Assets Is Yet To End

AUDUSD slides over flight to safety

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The Australian dollar slips as commodities fall amid recession fears. The latest CPI showed annual inflation easing slightly in August, which may convince policymakers that they are on the right track. However, another 50bp interest rate hike by the RBA this week could be sidelined by the market’s pessimism. Nervous traders may continue to hoard the safe-haven dollar amid selling of risk assets. Prolonged weakness in the Chinese yuan, as Australia’s biggest trading partner undergoes an economic slowdown could weigh on commodity prices and the Aussie proxy. 0.6260 is the next support and 0.6660 the first resistance ahead.

NZDUSD falls over risk aversion

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The New Zealand dollar weakens as the risk-off mode prevails. The RBNZ is set to deliver its eighth straight rate hike with another 50bps. Governor Adrian Orr said the tightening cycle is ‘well advanced’ but not over yet. Low unemployment rate and high inflation would still give the central bank leeway to push for tighter conditions. The market expects a further 50bp rate raise in November, taking the official cash rate to 4%. Though pronounced weakness in the kiwi may exacerbate inflation, which may turn into a downbeat spiral. The pair may find a short relief over March 2020’s low (0.5500). 0.5950 is the resistance in case of a bounce.

XAUUSD slumps as dollar bounces higher

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Bullion struggles as the dollar index climbs to a fresh two-decade high. Greater rate hike expectations may maintain a firm support to the greenback at the expense of gold. Renewed hawkish calls from Fed officials make the peak in US interest rates of anyone’s guess. The previously much-speculated 4% seems to be outdated. Policymakers are betting on the low unemployment rate to keep the monetary policy restrictive. A median estimate of all 19 Fed bankers shows interest rates rising to 4.4% by the end of this year. The precious metal would be heading to April 2020’s low at 1570 and 1700 is the closest resistance.

SPX 500 tumbles over global hard landing

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The S&P 500 falls as Fed officials remain vocal about tighter monetary policy. The market is bracing for another 75bp hike at the FOMC in November. There are definitely few good headlines to soothe investors. Property crisis in China and escalation on the Russia-Ukraine front only amplify worries of a concerted global hard landing. Resilience in the US job market may not be investors’ best friend but rather convince the Fed to carry on. With mega caps like Amazon and Apple under pressure, equities may bear the brunt of widespread risk aversion. The index is heading to a two-year low at 3280 and 3800 is a fresh resistance.


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