After last week’s volatility and gyrations, markets have a calmer feel about them to start this week. It’s late summer and perhaps no surprise when there is less volume and liquidity about that we all need a breather sometimes! The dollar has reversed some of its recent gains but still remains elevated. The DXY has fallen below the previous July top at 93.19 after making a 10-month high at 93.72 at the end of last week. The move lower was kicked off by comments from the Fed’s Kaplan on Friday who suggested he might change his call for early Fed tapering if the Delta variant started damaging US growth. He is known as one of the more hawkish Fed members.
Remember of course that last week, the RBNZ was all set to unleash the first interest rate hike by a major central bank since the start of the pandemic crisis. But a domestic lockdown by the NZ government forced the bank to delay its tightening.
Then again, how significant are the worries? If we look at the US stock markets, the answer would be not too significant! The S&P500 has just hit another record high at 4,480 with all the eyes of the world on 4,500. Apart from this psychological level, it is also a year-end target for many Wall Street firms. Crucially, some US Covid hotspots like Florida are showing clear signs that this wave is cresting and perhaps, whisper it quietly, could be the final big wave.
Comeback by commodities
The CAD, AUD and NZD are all leading the way higher today after suffering heavily this month. Improved risk sentiment and a near 6% rebound in oil are all definitely helping. Other commodities are also firmer with copper, the global bellwether, bouncing nicely off the widely watched 200-day moving average.
USD/CAD has done a sharp about-turn with the bearish recent price action signalling more downside. Today’s candle looks like it is forming the third leg of a bearish “evening star” candle with a low close today confirming a deeper retracement towards 1.25/1.26.