FX Daily: Mixed ahead of US CPI data


Monday’s relief rally was narrow.
Philip Wee14 Sep 2021
    Photo credit: Unsplash Photo


    Monday’s relief rally was confined to the commodity currencies. CAD, AUD and NZD appreciated 0.4%, 0.2% and 0.1% respectively. The Dow Jones Industrial Average rebounded 0.8% on Monday after last week’s sell-off on US inflation fears. US 10-year treasury yield eased to 1.326% from 1.341% in anticipation of a moderation in US CPI inflation today. Investors are mindful that headline and core CPI inflation are still running hot above 5% and 4% respectively. They will be looking for signs of companies passing on higher input costs from supply shortages and disruptions to the consumer. 

     

    Apart from inflation, investors are also worried that interest rates and taxes are heading up too. JPY and CHF are weak around 110 and 0.92 per USD respectively, unable to brush off the prospect of the Fed tapering asset purchases by end-2021. Neither could gold which was lacklustre below USD1800/oz for a fifth session. Although the broader S&P 500 rose 0.2% on Monday, it ended the session below its open from House Democrats pushing for the US corporate tax rate to rise to 26.5% from 21% to fund President Joe Biden’s budget. Nasdaq Composite disappointed and weakened 0.1% despite Apple’s scheduled iPhone launch event today. 

     

    Emerging Markets including their currencies might benefit from Wall Street’s overnight gains but the upside will be limited. Although Covid cases in the US dipped, the outbreak in China spread to the Fujian province which led to new restrictions. New Zealand also extended its Level 4 lockdown in Auckland for another week. Singapore is bracing for new cases to reach 1000 and exceed May’s high in the next few weeks. China slowdown worries linger from its crackdown in the private sector; troubled Evergrande is also seen edging closer to restructuring. PBOC is expected to lower its reserve requirement ratio rather than interest rates.







    Philip Wee

    Senior FX Strategist - G3 & Asia
    [email protected]


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