The US dollar made a strong comeback this week due to positive economic data and safe haven flows after tensions in the Middle East. Fed Chair Powell’s comments about sticking with quarter-point rate cuts also boosted the currency. Market participants have scaled back their rate cut bets, with expectations now set for only a 35% chance of a back-to-back 50bps reduction in November.
Looking ahead, the focus will shift to the US economic calendar. The Fed’s minutes and US CPI data for September will be key events to watch. If inflation remains sticky, investors may believe the Fed will proceed with planned rate cuts in November and December, which could further strengthen the dollar.
In New Zealand, the RBNZ is expected to cut interest rates by 50bps next week, following China’s stimulus measures and weak economic data. The kiwi may face upside risks if the Bank signals more aggressive easing, while a smaller rate cut could lead to a stronger currency.
The pound, which has been a strong performer this year, faced pressure after BoE Governor Bailey hinted at potential interest rate cuts. The upcoming UK GDP data for August will be closely watched to see if it supports Bailey’s remarks and pushes the sterling lower.
Additionally, the RBA minutes and Canadian employment report will be released next week, with expectations of a possible 50bps rate cut by the BoC. The focus will be on the BoC business outlook survey as well, as traders assess the economic landscape.
Overall, the currency markets are poised for volatility as central banks make decisions based on economic data and geopolitical events. Traders will need to stay vigilant and adapt to changing conditions to navigate the shifting currency landscape.
