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Forex Today: Will hopes resist recession fears?
What you need to take care of on Wednesday, October 5:
Optimism prevailed for a second consecutive day, leading to a continued dollar sell-off. The catalyst this time was the Reserve Bank of Australia, as it came out with a dovish surprise. Australian policymakers hiked the cash rate by a modest 25 bps, below the 50 bps expected, being the first to halt the ultra-aggressive quantitative tightening.
However, the global worrisome scenario remains the same. Inflation remains stubbornly high, while the risk of recessions is present among most major economies. For the record, the EU published the August Producer Price Index, which soared by 43.3% YoY, a record high.
The decision fueled hopes central banks are approaching the end of aggressive quantitative tightening. Global stocks rallied on relief, with US indexes sharply up for a second consecutive day as major indexes added over 2% each.
Government bonds kept recovering ground, keeping yields under modest pressure, which weighed on the greenback.
The EUR/USD pair trades just below parity and at its highest in over two weeks. GBP/USD is also up, currently trading in the 1.1470 price zone.
The aussie was the worst performer after RBA’s monetary policy decision, with AUD/USD now hovering at around 0.6500. The USD/CAD plunged towards 1.3500, trading nearby at the end of the American session.
The Swiss Franc edged higher against the greenback, with USD/CHF now trading at around 0.9790, while USD/JPY kept consolidating, now trading at around 144.00.
Gold benefited from the broad greenback weakness, trading at around $1,725 a troy ounce. Crude oil prices were also up, with WTI now changing hands at $86.20 a barrel.
Market players now await the Reserve Bank of New Zealand monetary policy decision. The central bank is expected to hike the main rate by 50 bps to 3.5%, and any decision different to that should spur volatility across the FX board.
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