Dollar is down ahead of US job openings and Fed’s speaks
The US long-term Treasury yield has fallen to a four-month low, pulling down the US dollar as investors seek safety after China threatened repercussions if Pelosi visited its self-governed territory.
After falling to its lowest in two months against the recovering Japanese yen on Monday, the dollar will likely continue declining on Tuesday. Also, it lost ground on other peers as investors positioned themselves for a less aggressive pace of interest rate hikes from the Federal Reserve.
RBA dovish stance pushes Aussie lower
Following the central bank’s 50 bps interest rate hike to 1.85%, Australian stocks pared declines. The Aussie dollar weakened as comments by the bank on its plans to tighten rates further were perceived as dovish. As the RBA’s Governor Philip Lowe noted, the bank is committed to reducing inflation to a range between 2% and 3%. Still, the path to this goal is “clouded in uncertainty”. The bank will adopt data-driven policy tightening instead of a predetermined path.
Oil falls on demand concerns
The energy sector fell more than 2% in response to mounting concerns about a slowdown in global demand. This led the broader market lower, driven by a nearly 5% slump in oil prices. This was due to the latest data out of China, which pointed to a slowdown in construction and factory activity, and stoked fresh recession fears. It looks like recessionary concerns have been growing in recent months as PMI data from Europe and Asia showed that factories were struggling to maintain momentum in July. There have also been some signs of weakness in the US labour market, with the number of new claims for unemployment benefits increasing and expectations of the July non-farm payroll falling, which will be released this Friday. There was also a slowdown in production due to flagging global demand and China’s strict COVID-19 restrictions.
Prices have also dropped as market participants await the outcome of a meeting to be held on Wednesday between the Organization of the Petroleum Exporting Countries (OPEC) and its allies, including Russia, collectively known as OPEC+, to decide how much oil will be produced in September. In recent months, oil prices have been losing their upward momentum. There is a high probability that oil will lead to a fall in commodities as soon as the supply and demand situation shows signs of further deterioration.
Events of today
On the data front, investors are watching June’s job openings, or JOLTS, which are expected to drop slightly from 11.25m to 11m, ahead of this week’s payrolls report.
Some Fed officials will speak on Tuesday to provide a clue about the upcoming path of monetary policy. New York University will host an event featuring St. Louis Fed President James Bullard. Since he has been notably hawkish on the pace of rate hikes, it will be interesting to see if he agrees with Fed chair Jay Powell’s pronouncement that the Fed is within the neutral rate range. The Chicago Fed’s Charles Evans and the Cleveland Fed’s Loretta Mester will also speak at the event. Mester recently said the Cleveland Fed wants to see consistently lower inflation rates before slowing the pace of rate hikes.
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