Currencies Tumble As Stocks Erase Gains

By Kathy LienForexMay 11, 2021 07:40

au.investing.com/analysis/currencies-tumble-as-stocks-erase-gains-200465539

Currencies Tumble As Stocks Erase Gains

By Kathy Lien | May 11, 2021 07:40

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What started off as a strong day for risk appetite turned into losses for currencies and equities. The Dow Jones Industrial Average and NASDAQ hit record highs at the start of New York trade but shed their gains to end the day lower.

Currencies tumbled as well but reversed before stocks, as traders lost confidence in the risk-on rally. With no major economic reports to trigger today’s reversal, it was a typical exhaustion move. Investors were very optimistic ahead of Friday’s non-farm payrolls report. It disappointed in a major way and instead of selling, they continued to buy on the hope that weak jobs number meant no tapering.

Today, reality set in and they realized that without taper or talk of it, inflation could rise quickly. In fact, that was exactly what we saw, with the New York Fed’s survey of inflation expectations rising to its highest level since September 2013. This survey measures how much Americans expect to spend on homes, rent, gas and higher education. The increase tells us they expect prices to rise sharply in the coming months.

This rise in inflation expectations drove the U.S. dollar higher against the euro, the Japanese Yen, Swiss Franc, Australian and New Zealand dollars. While non-farm payrolls were disappointing, this week’s consumer price index and retail sales reports could beat expectations. Spending, in particular, is expected to rise only 0.2%, which is a very low forecast in our opinion, considering reopening of business activity, the sharp increase in wages and higher gas prices. Expectations for a stronger report could help the U.S. dollar avert further losses this week.

There was still more demand for sterling and the Canadian dollar because the Bank of England and the Bank of Canada are expected to reduce monetary stimulus earlier than the Federal Reserve. Adjustments in monetary policy expectations had a big impact on currency movements on Friday and while the U.S. dollar recovered some ground, we don’t expect that fundamental driver to be forgotten.

Keep an eye on the euro because pandemic restrictions are beginning to ease. Italy began lifting restrictions two weeks ago, but restaurants in Spain reopened this weekend as the curfew and travel ban ended. France plans to ease restrictions on restaurants next week and it may not be long before Germany follows suit. We said often that when the euro area restrictions are relaxed, demand for euros will return as the recovery gains traction. Germany’s ZEW survey is due for release tomorrow, and we are looking for confidence to improve as stocks hit record highs and vaccination rates increase in Europe. Any pullback in EUR/USD should be limited to 1.2050.

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Central Banks

Interest Rates

Next Meeting

RBA

4.10%

Apr 01, 2025

BOE

4.50%

Mar 20, 2025

ECB

2.90%

Mar 06, 2025

FED

4.50%

Mar 19, 2025

SNB

0.50%

Mar 20, 2025

BOC

3.00%

Mar 12, 2025

RBNZ

3.75%

Apr 09, 2025

BOJ

0.50%

Mar 19, 2025

CBR

21.00%

Mar 21, 2025

RBI

6.25%

Mar 10, 2025

PBOC

3.10%

BCB

13.25%

Mar 19, 2025

S&P/ASX 200	8,251.90	-56.30	-0.68%
ASX 200 Futures	8,174.5	-65.0	-0.79%
ASX All Ordinaries	8,498.00	-62.10	-0.73%
US 500	5,931.0	-52.5	-0.88%
Dow Jones	43,462.79	+1.58	+0.00%
China A50 Futures	13,236.0	-52.5	-0.40%
Dollar Index	106.290	-0.219	-0.21%

Crude Oil WTI	68.88	-1.82	-2.57%
Natural Gas	4.029	+0.047	+1.18%
Gold	2,908.50	-54.70	-1.85%
Silver	31.690	-0.913	-2.80%
Copper	4.5322	-0.0313	-0.69%
US Sugar #11	19.87	+0.30	+1.53%
US Coffee C	372.93	-11.87	-3.08%

Australia 10Y	4.422	+0.024	+0.55%
Australia 5Y	3.939	+0.010	+0.25%
New Zealand 10Y	4.595	-0.028	-0.65%
U.S. 10Y	4.301	-0.092	-2.09%
Japan 10Y	1.349	-0.034	-2.46%
China 10Y	1.772	-0.027	-1.50%
Singapore 10Y	2.809	-0.042	-1.40%

CSL	262.47	+1.47	+0.56%
Woolworths	31.560	+0.310	+0.99%
ANZ Holdings	29.340	-0.210	-0.71%
Commonwealth Bank Australia	154.270	-1.960	-1.25%
Telstra Group	4.160	0.000	0.00%
National Australia Bank	35.390	-0.510	-1.42%
BHP Group Ltd	40.310	-0.490	-1.20%

Currencies Tumble As Stocks Erase Gains

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