Dollar dumped ahead of Jackson Hole Fed conference

Headlines

* USD hits 8-month low, yen gains as traders await Jackson Hole

* S&P 500 and Nasdaq end higher, rising for an eighth straight session

* Gold makes fresh all-time high on rate cut speculation, lower buck

* Crude oil closes lower again as weak China demand remains in focus

FX: We said USD looked weak in our Week Ahead article and the dollar hit eight-month lows last seen on January 2, taking out the early August spike low at 102.16. There’s a long-term minor Fib retracement level (78.6%) of this year’s move higher, at 101.88. Focus is on Fed comms this week with FOMC meeting minutes, Fedspeak and Powell at Jackson Hole.

EUR popped up to 1.1085, a new year-to-date high. The major is all dollar-led though this week’s eurozone PMIs may not help the euro. That said, Tuesday sees the release of negotiated wages for the bloc for Q2. If these are sticky, 68bps of ECB easing for 2024 will be reined in and could further support the single currency.

GBP got up to 1.2997 as cable continued higher after last Friday’s upside breakout. The mid-July top is at 1.3044. The BoE are seen as being less dovish than the Fed. Governor Bailey speaks at Jackson Hole on Friday, with PMIs released the day before.

USD/JPY dipped down to 145.18 late on in the Asian session. The yen strength came on the back of some of the front runners for the PM role in Japan being relatively hawkish the BoJ and yen.

AUD and NZD again performed well on the buoyant risk mood. The aussie July peak is at 0.6798. Risk sentiment remains solid with stocks continuing their impressive rebound, while the RBA is not cutting rates in September.

US Stocks: US markets saw more gains to kick off the week. The benchmark S&P 500 closed up 0.97% at 5,608. The tech-heavy Nasdaq 100 finished higher by 1.32% at 19,766. The Dow Jones settled 0.58% up at 40,896. Large-cap tech, communication services and consumer discretionary outperformed, while consumer staples and energy are the laggards, though still firmer. The latter is weighed on by weakness in the crude complex amid continued Gaza ceasefire talks and weak Chinese economy weighing on demand. The S&P 500 broader index has now pushed above the last minor retracement level (78.6%) of the recent sell-off after the record July high, at 5,551. The Nasdaq tech-dominated index has just pierced its 61.8% Fib mark at 19,444.

Asian stock futures are in the green. Asian stocks with mixed with a mildly cautious tone after Hamas rejected the latest ceasefire plan. The ASX 200 was rangebound with soft consumer stocks weighing on upside in gold miners. The Nikkei 225 traded around the 38k level, with the firmer yen pressuring buyers late on. The Hang Seng and Shanghai Composite saw buying on hints of targeted measures to promote consumer activity.

Gold made a fresh record high at $2510 before trading just off here, but still above the key psychological $2500 level. Fed rate cuts are imminent while geopolitical tensions remain.

Day ahead highlight – RBA Minutes, Canada CPI

RBA will release the minutes from its August meeting with markets watching for clues and insight on policy. The Board kept the cash rate unchanged at 4.35% and stuck to its hawkish tone. The statement reiterated that inflation remains above target and is proving persistent, so policy will need to be sufficiently restrictive until inflation is moving sustainably towards the target range. At the post-meeting press conference, Governor Bullock noted that the bank considered a rate increase and that a cut is not on the near-term agenda. She has since said they are ready to raise rates if needed and that the pricing of cuts for the next six months does not align with the RBA.

There aren’t any estimates for Canada CPI. The BoC has cut interest rates by 25bps at each of the last two decisions, keeping the door open for more action down the line. Investors are convinced that the Bank will continue cutting at each of the remaining meetings of the year and a further slowdown in inflation may add to that view, which could weigh on CAD. The most recent BoC gathering saw it leave its end-2024 CPI view unchanged at 2.6%. But it raised its 2025 CPI view to 2.4%, up from its previous forecast for 2.2%.

Chart of the Day – USD/CAD continues to fall

The broader risk backdrop appears positive for the loonie, with stocks continuing to bounce back. However, weaker crude prices may temper some CAD gains in the short run. The more dovish BoC has also seen the loonie lag rhe other commodity dollars.

After spiking to 1.3946 two week ago, prices have fallen and broke down through 1.37 on Friday. There is support around 1.36 with the 200-day SMA, and the May and July lows near here. The midpoint of the year’s bullish move sits at 1.3561.