4 Sept FX outlook – USD, EUR, GBP, CAD, AUD, NZD

Posted by Joshua Mahony -
Scope Markets

Table of Content


The US dollar closed the week on the front foot, after enduring a difficult start as other currencies managed to take advantage of its slip-up. The dollar index which tracks the US dollar’s performance against a basket of currencies closed the week with a minimal gain of +0.07% as it failed to move above last week’s peak but held its uptrend for the 7th week.

Several economic data reports hindered the US dollar’s performance this week as recession worries gripped the market. Consumer confidence declined in August to 106.00, as soaring energy and grocery prices curb spending. This was accompanied by a disappointing JOLTS Job openings figure, falling to the lowest level since March 2021 as the economy starts to show signs of strain. The private sector saw an addition of 177,000 jobs in August, providing a warning sign of potential weakness to come for the headline NFP release.

The US economy grew less than expected in the second quarter with figures standing at 2.1% against 2.4%. There was a bit of relief when unemployment claims dropped for the second week to 228k. To conclude the week, the highly anticipated NFP showed mixed reports with a better-than-expected payrolls figure of 187k being overshadowed by a 30k downward revision for July. Meanwhile, a jump in unemployment (3.8%) and weaker-than-expected wage growth figures brought a risk-off surge for the dollar.

Moving on, the outlook for the USD remains uncertain as the global economy is experiencing a slowdown amidst higher interest rates. Any additional signs of weakness could provide a tailwind for the greenback, although signs of a pause from the Fed could hinder its upward trajectory. With that in mind, investors should pay attention to the raft of FOMC member appearances this week as markets attempt to gauge the pathway for rates going forward. Given the recent signs of economic weakness, watch out for the factory orders, trade balance, services PMI, and unemployment claims data.


The euro had the worst performance this week against other currencies with a poor show against the US dollar after starting stronger earlier in the week. The currency looked like it was going to turn the corner after it started brightly with some economic data lending some support as the US dollar was pegged by disappointing data. However, the economic conditions around the eurozone cast a dark shadow over the euro, leading to its sharp decline this week. The European economy continues to battle with high inflation, slow growth, and the war between Russia/Ukraine.

Inflation continues to be a problem for the economy as it is currently at 5.3%; well above the ECB’s target. The central bank has looked to be preparing to raise rates again this month as it vows to bring inflation down to its target of 2%. However, analysts have warned against further tightening as the economy is sliding towards a recession with recent economic data reports showing weak growth within the economy as the impact of higher rates bites harder. The surprisingly high inflation reports from France, Italy, and Spain highlight the difficulty the ECB face in driving down prices towards target.

The euro will be looking up to some light economic data surrounding economic activity this week as it tries to find stability. Also, investors will look up comments from ECB President Christine Lagarde as she sheds more light on the central bank’s monetary policy path. With concerns over European growth building, markets will undoubtedly be keeping a close eye for further signs of distress in the German factory orders and retail sales data. Meanwhile, Friday brings a fresh batch of EU economic forecasts that is likely to bring further volatility for the euro.


The pound experienced a somewhat changeable week just gone, with the currency under pressure either side of a Wednesday rebound. While the pound finds itself on the front foot once again today, questions remain over a potential weakening of the economy and what that might mean for monetary policy going forward.

While last week was relatively quiet from an economic standpoint, the pound continues to find itself under the microscope thanks to a particularly worrying PMI report in late August. The sharp decline across both manufacturing and services sectors signal the potential for an impending period of contraction for the economy as a whole, raising questions over the Bank of England’s willingness to maintain its path towards higher interest rates in the face of potential recessionary pressures building. One notable economic release from last week came via the Nationwide house price index, which fell 0.8% in August, driving the annual figure to -5.3%; the weakest figure since July 2009. The potential collapse in house prices could prove damaging for the UK economy given the sheer amount of capital tied up in such assets. However, from a BoE standpoint, such a move might be necessary to drive down inflation towards target.

The housing sector comes back into focus this week with Wednesday’s construction PMI forecast to decline into contraction territory once again. Meanwhile, Thursday brings the Halifax house price index for August, which is forecast to deteriorate further into negative territory. From a monetary policy standpoint, we have started to see differing opinions throughout the MPC over whether we need to see further tightening or not. As such, keep a close eye out for commentary from Wednesday’s monetary policy report hearings, as markets attempt to gauge whether the signs of an economic slowdown will push a less hawkish tone to the detriment of the pound.


The Canadian dollar managed to ease off some pressure as it capitalized on the weak dollar and a surge in crude prices. Being a commodity-driven currency, the CAD found stability after oil prices maintained a four-day hot streak, hitting a nine-month high on talks of production cuts and inventory drawdown. However, the strength of energy markets has failed to translate into a significant breakout for the Canadian dollar thus far, with the currency largely consolidating throughout the past month.

On the economic side, Canada highlighted ongoing issues with a negative GDP reading for June accompanied by a downward revision to the main number. Meanwhile, Canadian manufacturing falls further into contraction territory with the PMI reading of 48 marking the lowest since mid-2020. Given those growing signs of weakness, the Bank of Canada looks likely to take a more cautious approach going forward to the detriment of the Canadian dollar.

Wednesday brings the latest Bank of Canada monetary policy decision, with markets widely expecting them to keep the overnight rate steady at 5%. Additional comments from Governor Macklem on Thursday should provide volatility as markets gauge whether the bank has seen rates top out. Meanwhile, the economy remains under the microscope with Friday’s Canadian jobs report bringing predictions of a potential fourth consecutive rise in the unemployment rate.


The Australian dollar enjoyed a welcome reprieve last week with the currency gaining ground against many of its peers. In part, that was driven by a constructive tone in equity markets coupled with weakness in European currencies as economic data started to sour. Nonetheless, Australia continues to struggle with its own issues, with a steady stream of China-related announcements driving uncertainty over the future of this crucial economic partner.

Last week saw Australian retail sales outperform, signalling a pick-up in consumption after a June contraction. However, the big mover came via Wednesday’s CPI release, with a surprise drop down to 4.9% likely to help justify the RBA after a surprise rate hold last month. With Chinese economic concerns rife, and inflation moving lower it is no wonder they have perceived any further tightening as unnecessary for now.

The central bank comes back into focus this week with Tuesday seeing all eyes turn to the RBA rate decision. Crucially this is the first meeting for Governor Michele Bullock, with any change of tone likely to drive volatility for AUD. Her appearance last week was mainly centred upon the impact of climate change on monetary policy over a longer term, and thus Tuesday’s meeting will be a better opportunity to understand her outlook and whether it differs from her predecessor. Elsewhere look out for GDP data on Wednesday and trade balance data on Thursday to be key drivers of volatility this week.


The New Zealand dollar has similarly been regaining lost ground over the past week, with intervention from the PBOC and the Chinese government helping to steady the ship amid a housing and credit crisis in the country. That theme has continued into this week with the Chinese government lowering mortgage rates for existing homeowners, and Country Garden welcoming a debt term extension that staves off default for China’s biggest home builder for now. Unfortunately, the Chinese government has a tough task ahead of them with deflation and underwhelming domestic consumption stifling demand in a real estate sector that is over-leveraged and relies on strong sales to help pay off ongoing debt obligations.

From an economic standpoint, the New Zealand economy had few data points of note last week, although a sharp decline in building consents does signal potential weakness in the housing market. Business confidence did pick up further, as it finds itself on the cusp of moving into optimism territory after two years of pessimism.

This week has started with a surprise outperformance in the New Zealand overseas trade index, which pushed into positive territory despite troubles in China. That relationship will be key on Tuesday with commodity prices and dairy prices under the microscope given recent declines. The decline in Chinese demand has undoubtedly hurt pricing for New Zealand’s exporters, subsequently damaging the economic outlook. Further weakness in export pricing could bring downside for the NZD.

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