The US Dollar leads the way as it stays firm against other major FX after Tuesday’s higher inflation figures. The Reserve Bank of New Zealand lifted NZD following taper talks. Here is today’s market report and what you need to know as the London session opens. 

Higher Inflation Figures boost the Dollar

On Tuesday, the US reported an inflation figure of 5.4% and core CPI of 4.5% – both higher than expected. With these figures, investors expect the Federal Reserve to be stricter with its policy as inflation becomes a concern. The inflation spike since the start of the year is a result of supply not being able to meet consumer demands after the lockdown was lifted. As the economy opens to resume normal activities, manufacturers have not been able to produce to maximum capacity. The result gave the dollar more strength and the index jumped back to retest the 92.8 top.  The dollar thus maintains its peak level since the first week of April.

On the other hand, the strong inflation data put some pressure on the US stock indices as they fell from their most recent record highs. Later today, Fed Chair Powell will comment on the recent development. The market will be interested in his address on inflation ahead of the Fed meeting coming later this month and would react accordingly.

NZD benefits from RBNZ taper talk

Also, in the Asian session on Wednesday, the Reserve bank of New Zealand kept its official interest rate at 0.25%. However, the bank has decided to reduce its current monetary stimulus. The decision took some pressure off NZD and the currency strengthened across the board. NZDUSD is back above 0.7 psychological level – a swift recovery from Tuesday’s slump to 0.6920. The Fed Chair Powell’s testimony today will be eyed for more stimulus or pressure on the currency pair.

All eyes on the BoC

The Bank of Canada will read the outcome of the last monetary policy meeting later today. The CAD index has been on a minor recovery since Friday as WTI jumped back to $75 following a slump caused by OPEC+ disagreement. The steady rise in commodities prices especially Oil, recent economic figures, very buoyant stock market and inflation concern could encourage the BoC to cut down its C$3 billion per week bond purchasing quantitative easing programme. This could lift the CAD especially if the bank gives clues to a nearer timeline for a rate hike. Early in the London market, the USDCAD dropped back to retest 1.25. It’s expected to be a volatile day for the currency pair as the BoC decision and Fed Chair Powell’s testimony take the central stage.

China intensifies crypto crackdown

Another Chinese province has banned crypto mining. China’s Anhui province shut down crypto mining to continue the country’s preparation to launch its own digital currency. At the start of the week, Bitcoin was trading above $34,000 after reports of more purchases from institutions. However, with the recent crackdown, the flagship crypto is back to $32,000 and might head to $30,000.

Today, traders should watch for the BoC rate statements, Fed Chair Powell’s speech together with the general price action of their favorite markets. Developments around the delta covid variant and the US PPI figure coming later in the day are also important.

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