Forex Today: Another positive week for the Dollar

The upcoming week is expected to see the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) hold interest rates steady. The focus will be on vital economic reports from the United States that include the ISM Manufacturing and Services PMIs and the ADP Employment report. However, it's important to note that if a government shutdown occurs, the release of the Nonfarm Payrolls report may be delayed or not occur at all. The US reports will likely be closely watched as they can significantly impact market sentiment and monetary policy expectations.

Here is what you need to know for next week: 

The US Dollar Index (DXY) has recorded an eleventh consecutive weekly gain, supported by upbeat US data, higher Treasury yields, and market uncertainties. The fundamental factors continue to favor the strength of the US dollar. Although there was a sharp pullback on Thursday, the Dollar regained its strength, indicating an overall upward trend with minor signs of exhaustion.

In the upcoming week, US economic data will be crucial in challenging the current uptrend or potentially fueling further gains. On Monday, the ISM Manufacturing PMI will be released, followed by the ADP Employment report and the ISM Manufacturing PMI on Wednesday. The key report will be Friday's Nonfarm Payrolls, which is expected to show a 150,000 increase in jobs. However, it's important to note that a partial government shutdown could potentially impact the release of economic data, including NFP.

The upcoming economic data will be crucial, and if it reflects an improving economic environment and labor market data exceeds expectations, the market may give more serious consideration to another interest rate hike by the Federal Reserve, which could further strengthen the US dollar. However, there are concerning factors for the US economy and market confidence. The expansion of the United Auto Workers union strike and the potential government shutdown next week are unfavourable for the economy and can impact market sentiment negatively.

China's official Purchasing Managers' Index (PMI) for September will be released on Saturday. These figures and the potential US government shutdown on Sunday will set the tone for the market opening.

Inflation in the Eurozone cooled in September, with the Consumer Price Index falling from 5.2% in August to 4.3% in September. This decline suggests that the European Central Bank (ECB) may have reached the peak of its tightening cycle. In the upcoming week, Eurostat will release the Producer Price Index.

Sam Cartwright. Economist at Société Générale:

But with the downside surprise to core and inflation and business surveys weakening, it supports our view that the ECB won’t hike any further. However, we also see a clear risk that high unit labour costs will result in sticky core inflation, which the ECB may need to react to with rate hikes next year.

The negative streak of the EUR/USD pair has now reached 11 weeks. However, there are some positive signs as the pair closed around 1.0560, a bit higher than the bottom levels.

On Friday, the Bank of Japan (BoJ) announced an unscheduled bond purchase, indicating its determination to keep bond yields under control. However, despite the USD/JPY pair reaching its highest weekly close in decades near 150.00, no intervention has been announced.

GBP/USD managed to close the week higher, moving away from the lowest since March, it reach at 1.2110. With no major reports scheduled for next week, market focus will be on speeches from members of the Monetary Policy Committee of the Bank of England. An improvement in risk sentiment could support the British pound.

USD/CHF continued its rally, reaching 0.9227, the highest level since March, before retracing to 0.9160. Switzerland will release its consumer inflation data for September on Tuesday.

Crude oil prices played a significant role in the large swing seen in USD/CAD, as the pair rebounded from the 20-week Simple Moving Average at 1.3410 to 1.3570. The Canadian employment report is scheduled for release next Friday.

AUD/USD hit multi-month lows but later rebounded, remaining range-bound around 0.6400. The Reserve Bank of Australia (RBA) is expected to keep the key interest rate unchanged at 4.10% next Tuesday.

NZD/USD recorded its second consecutive weekly gain, although the move remained modest, with the pair unable to consolidate above 0.6000. The Reserve Bank of New Zealand (RBNZ) will announce its decision on Wednesday, and it is expected to keep the Official Cash Rate (OCR) unchanged at 5.5% with a hawkish tone.

Crude oil pulled back from one-year highs, with WTI retracing towards $90.00 per barrel. Gold experienced a collapse on Friday, falling below $1,850 per ounce. The yellow metal lost over 4% during the week, marking its worst week in months. Silver also ended the week significantly lower after a volatile Friday, where it climbed to $23.55, a one-week high, before tumbling 5% to around $22.00, posting its lowest close since March.