After two days of steady losses, the greenback is back on the offensive. The Bloomberg Dollar Index is up 0.5% after losing a full percent yesterday.
Overview
The dollar is benefiting from a reversal in the fortunes of riskier assets. After staging a strong beginning to the month, U.S. equities are poised to fall when markets open. Both the S&P and Nasdaq reached two-week highs yesterday. Some analysts are pointing to reduced bets that the Federal Reserve will take a page out of the Reserve Bank of Australia’s playbook and start to pivot away from aggressive interest rate hikes. More likely, we are seeing a modest reversal of the outsized moves on Monday and Tuesday. This morning data showed that the private sector added 208K jobs in September, according to ADP. The print slightly beat estimates and has not had a material effect on the buck so far. The biggest risk event on this week’s docket remains Non-Farm Payrolls on Friday.
What to Watch Today…
- OPEC+ meets in person
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NZD ⇓
The New Zealand dollar experienced a major whiplash overnight. The kiwi initially surged as much as 1.3% against the U.S. dollar after the Reserve Bank of New Zealand hiked rates 0.50%. The move was widely expected but came a day after the Reserve Bank of Australia surprised markets and hiked only 25 basis points. The RBNZ’s official cash rate is now 3.5 after the central bank hiked rates by half a percentage for five consecutive meetings. However, the Kiwi performed a quick 180-degree flip and is now down 0.7% from yesterday’s close. The 2% overnight swing highlights the elevated levels of volatility in the fx market. Vols are now at the highest level since the early days of the pandemic in 2020.
GBP ⇓
The British pound is in free fall against the U.S. dollar in early trading. GBP/USD is down 1.26% at the time of writing. The dip for the sterling breaks a six-day winning streak for the sterling after it fell to record lows against the greenback in September. The bulk of today’s movement happened as new U.K. Prime Minister Liz Truss addressed the Conservative party conference. Truss acknowledged her rocky start and received backlash from Conservative MPs for flip-flopping on a tax plan that would reduce taxes on top earners. Truss promised to get an “iron grip” on the nation’s finances and pledged fiscal responsibility. GBP/USD has traded in a wild 11%-point range over the past two weeks, so more volatility is ahead.
