The dollar dropped off and the stock markets rallied in the US session on Friday as Fed Chair Jerome Powell indicated that the FOMC won’t accelerate the pace of rate hikes. The market took this on a dovish slant and we saw the expected reaction with the dollar dropping across the board, the US stock indices ploughed higher with the S&P once again hitting a new high. We saw some strong moves to the topside in some of the EM currencies with Mexican Peso gaining on news of a pending Nafta agreement and the Chinese Yuan driving higher as the PBoC reintroduced a ‘counter-cyclical’ factor for the banks to use when calculating currency pricing. The Aussie gained back nearly all the ground lost on Thursday against the greenback as the triple impact of a Scott Morrison victory in the leadership vote, dovish fed sentiment and an increasing Yuan all took effect.
All the fun and games surrounding the political upheaval in Australia seemed to have calmed down this morning in market terms, the Aussie has nearly filled Thursday’s losses and international investors could be forgiven for asking exactly what’s changed and the honest answer will probably be in real terms, not much! We’re still in a very similar position to where we were this time last week, there’s unlikely to be any major or indeed minor changes of policy and traders will once again reset to the main influences that we’ve seen over the last few months in the market. International factors still look set to dominate market direction with global growth concerns still front of mind for most investors.
Looking at the week ahead and it’s set to be relatively quiet in terms of fundamental economic data as we enter the last week of the northern hemisphere holiday season. It’s the last bank holiday of the summer in the UK today and that should keep things fairly relaxed to start the week, we’ve got a smattering of tier 1 data as we progress but once again sentiment and news will probably be the main catalysts for market moves. Trade will still be the main driver with Nafta back in vogue as well as the on going China-US situation. We may see more rangebound conditions ahead before we hit a very risk event heavy week when we roll over into September.