The U.S. dollar extended lower against most of the major currencies on Wednesday despite a stronger Empire State manufacturing survey. According to this report, activity in the New York region soared in September with the index rising to 34.3 from 18.3 (a modest decline was anticipated). Strong gains were seen in new orders, employment, shipment, delivery and unfilled orders.  While the index has seen some recent volatility, today’s report eases some concerns about the recovery.
Retail sales tomorrow will go a long way in setting expectations for next week’s Federal Reserve monetary policy announcement and the market’s appetite for U.S. dollars. Economists are looking for consumer spending to fall for the third time in four months. In July, car shortages and Amazon Prime Day hangover drove spending lower but there’s back to school spending in August and final summer vacations. This means spending could be stronger than anticipated especially with larger percentage increases in Johnson Redbook retail sales in August compared to July (see chart below).

The rebound in Treasury yields is a sign that investors haven’t given up on a taper announcement this month. For example, EUR/USD is trading not far from pre-CPI levels. If retail sales surprises to the upside, the dollar will rally against all of the major currencies. Given recent price action, EUR/USD and AUD/USD are particularly vulnerable to losses. If spending prints positive, we could see a very strong rally. However if economist predictions are accurate and consumer spending falls for the second month in a row, taper expectations will recede quickly which will translate into renewed losses for the U.S. dollar. The biggest beneficiaries should be sterling, the Canadian and New Zealand dollars. The best performing currency today was the Canadian dollar, which rallied on the back of 2% rise in crude prices and stronger CPI.
The U.S. dollar won’t be the only currency in focus for the next 24 hours. New Zealand releases its second quarter GDP report which will be followed by Australia’s labor market numbers. Q2 was a good period for many countries and New Zealand was no exception. With virtually zero COVID-19 cases in the spring, economic activity was returning to pre-pandemic levels. A lot has changed since then with the country back in lockdown. The prospect of significantly weaker Q3 growth should lead many investors to overlook a positive report. 
Meanwhile investors should be prepared for ugly Australian labor market numbers. Stay at home orders in many Australian states means job losses. Economists are looking employment to fall by -90k which would be the single biggest monthly decline since June of last year. Full and part time work is expected to fall with the unemployment rate rising to 4.9% from 4.6%. With vaccination rates on the rise, we can finally see the light at the end of tunnel but for now, it should be difficult for investors to look past such a weak jobs report.  

Past performance is not indicative of future results. Trading forex carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent financial advisor if you have any doubts.

Feed news

How do emotions affect trade?
Follow up our daily analysts guidance

Subscribe Today!    

Latest Forex Analysis

Latest Forex Analysis

Editors’ Picks

EUR/USD holds above 1.1700 but the upside is limited

The EUR/USD pair flirted with 1.1750 but was unable to retain its modest intraday gains. Now trading in the 1.1720 price zone, bears retain control ahead of the US central bank monetary policy decision.


GBP/USD falls toward 1.3650 on fresh dollar strength

GBP/USD is retreating back toward 1.3650 as the dollar reasserts itself. Fears that the crisis in China's Evergrande could turn into a more significant downturn have resumed. Central bank decisions are awaited.


Gold: Further advances depend on the Fed

A better market mood put pressure on the American currency. The US Federal Reserve will announce its monetary policy decision on Wednesday. Gold advanced for a second day in a row, but additional gains are in doubt.

Gold News

Shiba Inu bulls can't hold SHIB from dropping to $0.000006

Shiba Inu price has fallen -28% over the past four trading sessions. Bears remain in control as bulls fail to complete a breakout above $0.000008. Bulls must hold $0.000007 to prevent a drop towards $0.000006.

Read more

Fed Preview: Three ways in which Powell could down the dollar, and none is the dot-plot

No taper now, but when? That is the main question for the Fed in its all-important September meeting. The bank buys $120B worth of bonds every month and it is set to reduce the pace at some point – the first step toward raising interest rates. 

Read more