Forex Trading Library

The Week Ahead – Thinking ahead

Markets price in rate cuts for next year

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key data release
AUDUSD rallies as RBA to stay firm
AUDUSD-CHART-4-12-2023

The Australian dollar climbs back as the RBA might stay assertive amid persistent inflation. Goods prices slowed down by more than expected in October driven by drops in petrol, rent and travel costs, reducing the pressure on the RBA to leave the market with a Christmas hike surprise. However, services inflation has remained elevated and policymakers may deem there is still too much resilience in the economy. Market participants have one further rate hike early next year baked into the pricing and an assertive guidance by the central bank this week could push the exchange rate towards 0.6900 with 0.6460 as the first support.

USDCAD retreats on improved risk appetite
USDCAD-CHART-4-12-2023

The Canadian dollar claws back some losses as markets bet on an improved growth outlook. ‘Soft landing’ is the keyword as Canada’s core inflation in October eased to its lowest levels in about two years. After BoC Governor Tiff Macklem said that interest rates might be at their peak, traders have turned their attention to when the first rate cut will land. Most believe that the BoC will be setting the pace for the easing cycle and are moving forward by discounting a cut in the first half of 2024 with more to follow. Risk appetite may boost demand for the higher-beta loonie. 1.3400 is the greenback’s support and 1.3900 a key resistance.

XAUUSD rallies as dollar slips
XAUUSD-CHART-4-12-2023

Bullion soared as the US dollar retreated on expectations that the Fed has concluded its rate hiking cycle. Even though US growth and inflation prints remain stronger than expected, little seems to dent traders’ enthusiasm in gold. After Fed officials let out hints that the policy rate is at its peak, dips in bond yields and the greenback have put the non-yielding metal back on track. The market will look for confirmation in the next set of labour data and a softer reading could trigger a deeper correction of the dollar, which in turn may propel gold past its all-time high of 2080. 1930 is a fresh support to give the rally some breathing room.

NAS 100 nears 2-year high on subdued bond yields
NAS-100-CHART-4-12-2023

The Nasdaq 100 advances on hopes the Fed will start cutting rates in the months ahead. With policymakers seemingly shifting their stance from aggressive to comfortable about the level of borrowing costs, investors see interest rates on hold for the next few policy meetings and loosening to avoid derailing the economy. A slowdown in the job market would probably put a dent to some officials’ determination to keep financial conditions restrictive for longer. Improved appetite for riskier equities would mirror a sustained drop in Treasury yields, lifting the tech-heavy index towards its all-time high of 16700. 15330 is the closest support.

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