Global risk assets extended a selloff at the start of the week as fears of high inflation and a global recession grow.
UK markets are in the spotlight as the pound sterling (GBP) fell to a record low of $1.0350, but subsequently pared its loss to around $1.07, and bond yields rose to their highest level in more than a decade, sparking talk of emergency action from the Bank of England (BoE). The market chaos unleashed by the government's fiscal plan on Friday accelerated after the government promised further tax cuts.
Global stocks are trading near 2020 lows, with NYSE stock futures falling on fears that the Fed's rate hikes will hurt the economy. European stocks are holding steady in a bear market that began Friday, with mining and energy sectors posting the worst performance following the oil price declines.
The euro (EUR) fluctuates as investors weigh Italy's prospects under the most right-wing government since World War II. Giorgia Meloni struck a conciliatory tone after her election victory while traders were far more concerned about the collapse of the United Kingdom.
Forex traders find developed markets more difficult to navigate than their emerging (EMFX) counterparts.
Geopolitical risks, from the war in Ukraine to escalating tensions in Taiwan and unrest in Iran, are also weighing on sentiment. Meanwhile, the OECD cut almost all of its growth forecasts for the 20 G2023, while also anticipating further interest rate hikes, just as business confidence in Germany deteriorated.
The Colombian peso (COP) closed Friday's session at COP $4,438.5 pesos per dollar, with an associated weakening of the COP against the USD (+1.68%).
- Geopolitical tensions on the Taiwan and Ukraine front are increasing risk aversion in the market, pushing the dollar (USD) up to highs not seen since 2002.
- As the prospects of a recession increase, emerging markets are weakening as demand for their most risk-sensitive assets declines.
- The weakening of oil prices (WTI -1.18%, Brent -1.23%) reduces future dollar inflows, weakening the COP.
- On the local market, the market is awaiting the Bank of the Republic's monetary policy decision on Thursday, with expectations of a +150bps rate hike, which could dampen volatility throughout the week.
- Meanwhile, we expect the COP to maintain its upward trend, with a trading range between COP $4,420 and COP $4,490 per dollar.
The Colombian europeso (EUR/COP) closed the previous day trading at COP $4,293 per euro, with an associated strengthening of the COP against the EUR (-0.06%).
- The EUR/USD has fallen to more than 20-year lows, below parity near USD 0.955 per euro.
- Fears of a eurozone recession appear to be weighing more heavily on the euro than the prospect of interest rate hikes from the European Central Bank. ECB Vice President Luis de Guindos announced that the third and fourth quarters are expected to see near-zero growth rates in the eurozone, while the faster-than-expected decline in the German IFO sentiment indices for September (84.3 in September vs. 88.5 in August; 87.1 in expiry) strengthens the prospects for a recession in the German economy.
- Expectations of higher prices this winter, especially for energy-intensive industries, are weakening the eurozone's trade balance by increasing outgoing capital.
- The ongoing conflict between Russia and Ukraine, along with the prospect of a right-wing government in Italy, is increasing investor uncertainty, restricting capital inflows.
- The euro's weakness continues to drive the COP higher, so we expect a bearish trend for the session, with a trading range between COP$4,260 and COP$4,320 per euro.
The British pound (GBP) opened the day lower at USD$1.075, down 0.88% from its previous close.
- GBP/USD is seeing an intraday rebound after hitting lows not seen since 1985 due to speculation about a possible Bank of England intervention in the pound.
- The pound remains under downward pressure following new Prime Minister Liz Truss's announcement on Friday, which revealed plans for tax cuts and new spending that will require billions in additional bond issuance, creating uncertainty about the country's medium-term fiscal situation and, in turn, lower demand for the pound.
- We expect the pair to show a bearish move with associated weakness and a narrow trading range between USD $1.08 and USD $1.01.
The Canadian dollar (CAD) started the day weakening, with an upward exchange rate, which is located at the level of C$1.36 per dollar, increasing +0.67% compared to its previous close.
- A combination of factors has pushed USD/CAD to its highest level since June 2020.
- Lower oil prices are weighing on the CAD and offering support amid continued buying around the dollar.
- Investors are awaiting Fed statements today for some momentum and short-term trading opportunities, as well as the Canadian wholesale sales data. Furthermore, expectations remain for other macro data from Canada and the U.S. throughout the week.
- We expect a narrow daily trading range between C$1.373 – C$1.361 per dollar.
The Australian dollar (AUD) starts the day with a weakening of -0.51%, trading around USD$0.649 per AUD.
- On Friday, the currency closed up 0.07% after hitting a low of USD$0.651 per AUD.
- The Australian currency is unable to find support and remains below 65 cents per AUD. Global risk aversion continues to rise, reflected in the depreciation of currencies worldwide.
- Australia's largest export, iron ore, is currently trading at USD $98.6, less than half of what it was selling for in July 2021. This restricts the flow of foreign capital, putting downward pressure on the AUD.
- We expect a daily trading range of USD$0.655 – USD$0.644 per Australian dollar.
The New Zealand dollar (NZD) started the day weakening, with a downward exchange rate at the level of USD$0.571 per NZD, falling -0.44% compared to the previous close.
- On Friday, the currency closed down 0.01% after reaching a high above USD$0.575.
- The NZD reflects fears of multiple central bank intervention to contain inflation, amid pessimism regarding the war in Ukraine. The Ukrainian president said that "Putin's nuclear threats were a hoax, but now they could be real." This keeps NZD sellers in the market sensitive to any news.
- Updates from the People's Bank of China regarding the increase in foreign exchange reserves attempted to defend the NZD. However, risk aversion is preventing the positive momentum from being sustained, and the bearish strength remains.
- We expect a daily trading range between USD$0.576 – USD$0.567 per NZD.
This morning the Swiss Franc in the USD/CHF pair, dawned trading at over CHF $0.9892 per dollar, which is equivalent to a weakening with a variation of +0.74% compared to its closing price on Friday.
- Although Switzerland's main export destinations are in Europe, its trade surplus, and consequently its main source of foreign currency, is with China, India, and Hong Kong, which in the medium term decouples it from other regional peers that depend largely on the eurozone.
- Based on the above, it is expected that this week, given expectations that the global economy will be affected by monetary restrictions, its main trading partners will demand fewer goods and services from Switzerland, which will put upward pressure on the pair, which is currently testing the support of CHF $0.9864.
- The range for today is expected to be between CHF $0.9797 and CHF $0.993 per dollar.
This morning the USD/CZK pair weakened with a variation of +0.59%, trading at around CZK $25.538.
- The Czech Republic's main exports, like those of Sweden, come from Germany and the European Union, making the two currencies highly correlated and exposed to the same drivers in terms of international trade. Accordingly, traders will be focusing on the data due out this week from this region.
- While higher interest rates are expected in the rest of the world, they have remained unchanged in the Czech Republic, putting upward pressure on the pair, which could head towards CZK $25.8105, its next resistance, later this week.
- Due to the tensions between Poland and Russia and Putin's urgency to show a victory or divert attention, Poland, as one of the Czech Republic's exporters and caught up in the rising tensions between the West and Russia, is expected to put upward pressure on the krone today.
- Based on the above, we expect the krone to range between CZK $25.48 and CZK $25.76 per dollar today.
The Swedish krona (SEK) is taking a break this morning, trading at around SEK $11.3395 per dollar, weakening (+0.38%) compared to its closing price on Friday.
- Last week, the SEK traded in a highly volatile environment amid geopolitical tensions, economic data, and monetary policy rhetoric that cast a pessimistic tone across financial markets and explained the surge in the USD/SEK pair as demand for dollars as a safe haven asset increased.
- Christine Lagard is expected to speak today, Monday, Tuesday, and Wednesday, as financial markets anticipate a recession due to central bank monetary restrictions and high energy costs related to the situation in Ukraine, putting upward pressure on the pair.
- This week, Sweden's main trading partner, Germany, will release employment data, just as the European Union will release its inflation figures. Traders will be closely watching the signals these economic data provide, especially how they may affect expectations regarding interest rates and trade with Sweden.
- Technically, the pair touched resistance at SEK 11.4563 last week, retreating to its current level. Given the expectations of higher interest rates around the world in light of the recent increases by the Riksbank (+75 bps), the pair is expected to retest these levels this week. If it breaks above this level, it could reach SEK 11.8059 per dollar.
- In line with the above, we expect the pair to have a narrow range today between SEK $11.1824 and SEK $11.4934 per dollar.
The Mexican peso (MXN) starts the day weakening, with an upward exchange rate that stands at the level of MXN $20.33 Mexican pesos per dollar, increasing +0.78% compared to its previous close.
- In the absence of significant economic data from Mexico today, traders should be alert to movements in the price of oil, which at the start of trading fell below USD $85.4 (-0.87), which could generate negative pressure on the Mexican peso by reducing the future inflow of dollars into the country.
- In this context, we expect the pair to show an upward movement, due to the weakness of the Mexican peso, with a limited trading range between MXN $20.43 – MXN $20.18 per dollar.
The Chinese yuan opens the session weaker, trading at CNH $7.159 per dollar, advancing +0.38%.
- The yuan (CNH) thus fell for the sixth consecutive day, its longest losing streak in three years, even as China said it would raise its risk reserve requirement to increase the cost of shorting the currency.
- No major macroeconomic data is expected in the Asian country today; therefore, expectations remain high for the PMI data in China on Thursday of this week.
- In this context, a narrow intraday trading range of CNH$7.13 – CNH$7.17 per dollar is expected.
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| Hector Wilson Tovar Garcia: Research Manager – wtovar@accivalores.com
| Paola Andrea Lama Velasquez: IE Analyst – paola.lama@accivalores.com
|Nicolas Aguilera Peña: IE Analyst - nicolas.aguilera@accivalores.com
| Estiven Hurtado Cortes: IE Analyst – estiven.hurtado@accivalores.com
| Sarah Garces Anzola: IE Analyst – Sarah Garces@accivalores.com
| Juan Camilo Buendia Delgado: IE Analyst –juan.buendia@accivalores.com
| Valentina Orozco Acuña: IE Analyst – valentina.orozco@accivalores.com
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