The Index futures in the US declined during this morning’s Asian and European trading sessions. This may be the result of traders looking for further clarification from this evening’s Fed minutes. Alternatively, we will see a different movement once the stock market opens. The price of the NASDAQ is seeing the strongest decline measuring at 0.82%, followed by the SNP500 which declined by 0.74%, and the DowJones by 0.52%.
The prices of commodities also declined during today’s trading session. It's important to note that the US monetary policy can also have a significant effect on their price. The price of crude oil continues its negative price movement and, if maintained throughout the day, will form its 4th consecutive bearish day.
Currently, the US Dollar Index remains 0.10% higher than the market open. Market participants are mainly looking at tonight’s Fed report for further certainty as well as the US Retail Sales figures for the previous month. However, the speeches of Fed members tomorrow will have a significant impact along with the employment figures.
The Euro Currency Index known as the EURX or EXY, declined to 101.68 this morning. Also this morning, Germany announced that the country will not have enough energy for the winter months if Russia cuts gas supplies. Another significant influential factor will be the European Central Bank’s next conference as most economists are now advising that a further hike may be needed within the coming months but a concrete indication would be ideal.
With regards to the Pound, most experts are now advising that the Bank of England will opt to increase the interest rates by 0.50% rather than the expected 0.25%, after seeing the inflation figures rise significantly. Inflation in the UK is now at 10.1%, which is much higher than most countries within the region. Inflation figures from the UK’s main competitors are confirmed below:
However, it should also be noted that some countries have experienced similar levels of inflation such as Spain and the Netherlands.
The New Zealand Dollar has been unable to maintain momentum and hold its value after the decision of the Reserve Bank of New Zealand to raise the interest rate to 3%. This may have partially been due to the rate hike already being priced into the market. The accompanying statement saw the head of the regulator, Mr Orr, advising that although economic growth in the country is slowing down, a recession is not expected in the immediate future and the bank still sees value in increasing interest rates while employment remains stable.
The US Dollar has generally improved over the past week against most currencies but has specifically performed well against the Australian Dollar. The price today significantly declined by 1.21% or 85 PIPs which would be the largest decline since the 2nd of August if maintained. The price movement is mainly a result of the US Dollar slightly increasing today, but also due to the poor data released from Australia regarding the employment sector.
AUD/USD 12-hour price chart on August 17th.
The second quarter Wage Price Index was released, which measures the changes in wages for the country. The indicator remained at the same level of 0.7% rather than slightly increasing as forecasted. It was first predicted that the index would rise to 0.8%, but it corrected from 2.4% to 2.6% year-on-year with estimates of experts set at 2.7%. Wages in Australia are rising at their highest pace in 7 years, but this is also the case in most countries. Nonetheless, the country is struggling with record inflation, especially since the wage growth is behind some other countries.
However, some economists have reacted positively as major increases in salaries could catalyze a new wave of consumer price increases as businesses shift the costs of hiring and retaining employees onto their product/service buyers. Therefore, higher wage growth can support the levels of inflation resulting again in higher interest rates. If interest rates continue to increase and become unattractive then, of course, it can result in the economy crashing as borrowers are not able to keep up with debt. Though, so far we can see the price has indeed reacted negatively.
The American currency looks more attractive to investors than its Australian counterpart, according to Bloomberg. The US economy has been largely coping well with the inflation and energy crisis. Specifically, certain industries and the employment sector, which so far continues to improve. This afternoon, market participants will be looking for information about the size of the future rate hike as the market is uncertain as to whether it will be kept at 0.75% or reduced to 0.50%. Any hints can potentially cause a significant movement in the price of the AUD/USD pair.
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