GBP, AUD, Gold 2-month low

GURU WISDOM

“The easiest way to manage your money is to take it one step at a time and not worry about being perfect.” – Ramit Sethi
 

MARKETS

A combination of fear over rising coronavirus cases in Europe, disappointing economic data and a deepening sell-off in tech stocks pulled stock markets lower. The Dow Jones fell 500 points (1.9%) while the Nasdaq lost 3%. Shares in Europe edged higher thanks in part to the benefits of a weaker currency while Asian markets were mostly flat.

The US dollar continued to breakout versus major currency pairs (see NZD/USD chart). The dovish comments from the RBNZ added to speculation that it and the RBA would soon lower interest rates- possibly into negative territory. The British pound and Australian dollar- currencies that tend to do well when growth expectations are rising – fell to 2-month lows.

The dollar strength continues to punish gold, which fell to its lowest since July 23, another 2-month low. Oil prices sank on news of China’s plan to go carbon-neutral and renewed fears of travel restrictions.
 

Dollar rampant

Fed Chair Jerome Powell said new fiscal stimulus would help the economy but a new package before the US election looks increasingly unlikely. The dollar has the dual tailwind right now of better US economic data than Europe, no virus second wave in the US and haven demand as stock markets rollover.
 

Carbon neutral

The shock announcment at the G20 that China would aim to be carbon neutral within four decades added to some late weakness in oil prices. The promise from President Xi came within minutes after US President Trump criticsed China’s envrionmental record. 
 

Preview: SNB 

A mixed picture on Switzerland’s economic recovery and a stable EUR/CHF exchange rate thanks to FX intervention probably means interest rates remain unchanged and the Swiss National Bank only makes small changes to economic projections. Price deflation fell to -0.9% in August, worse than the 0.8% expected but Q2 GDP fell -8.2%, a little better than the -8.5% expected. If the haven flows that are making the US dollar and the yen bid- are also moving into the Swiss franc, then an FX-intervention-only approach from the SNB may soon not be enough.