Market Drivers – US Session, September 7, 2023

The US dollar is still strong, and on Friday it will try to hold onto or increase its weekly gains. Japan will make its Q2 GDP figures public during the Asian session. The Canadian jobs report will be the day’s main event later on.

The Nasdaq fell 0.89%, while the Dow Jones gained 0.17%, as Wall Street came to a mixed conclusion. The markets are still characterised by caution. Following the announcement of US GDP data, US Treasury yields first increased but eventually decreased. The 10-year US Treasury yield hovered around 4.25%.

Economic Data

Initial Jobless Claims fell to 216K and Continuing Claims to 1.679 million on Thursday, exceeding market expectations. The US Dollar Index spiked after the data to 105.15, its highest level since March, before dipping to 105.05. Economic data support the notion of “higher for longer” interest rates and boost the US dollar.

Key Developments

Just around 1.0700, EUR/USD recorded its worst daily close in the previous three months. The Euro is moving with an obvious negative tilt and doesn’t appear to be stabilising, making it vulnerable. There shouldn’t be any shocks in the Consumer Price Index for Germany’s final release. The European Central Bank (ECB) will meet to discuss monetary policy next week, although it is not yet obvious what decisions it will make regarding interest rates.

We anticipate the ECB will announce a 25bp raise at the September meeting, resulting in a peak in the deposit rate of 4.00% due to the deteriorating economic outlook and markets turning more dovish. After all, the ECB’s mandate is to promote inflation rather than promote economic activity.
After touching new multi-month highs just below 148.00, USD/JPY slightly declined. On Thursday, the Japanese Yen was supported by the change in US yields. On Friday, Japan will announce its Q2 GDP growth figures.

The British Pound experienced its sixth daily loss against the US Dollar in the previous six days. The GBP/USD exchange rate dropped to a three-month low at 1.2445, just below the 200-day SMA (1.2425), before recovering and climbing to 1.2470.

Despite indications of stabilisation in China’s trade data, rising commodity prices and a stronger US Dollar continue to put pressure on the Australian Dollar. With a negative bias, the AUD/USD pair is still range-bound between 0.6360 and 0.6400, close to monthly lows.

Even though the figures from the Ivey PMI and Building Permits were encouraging, the Canadian Dollar underperformed during the Americas session. Governor Macklem provided an explanation for the Bank of Canada’s decision to maintain interest rates at 5% and said that underlying inflation is not moving much in the direction of deflation. As it approaches the 1.3700 level, USD/CAD has risen to its highest level since March. The August employment report for Canada will be made public on Friday.

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