Risk appetite improves, dollar weakens, Reserve Bank of Australia is expected to stay put on Tuesday

On September 5th, Beijing time, the Asian market morning, the US dollar index fluctuated narrowly, and is currently trading around 104.17. The safe-haven US index fell on Monday, closing down 0.16% at 104.11. China's policy stimulus or the prospect of stabilizing the economy has improved risk sentiment, while the US employment data is boosting bets that the Federal Reserve may be at the end of the rate hike cycle.The Reserve Bank of Australia will hold a policy meeting on Tuesday and is expected to stay put。Goldman Sachs said that the Bank of Canada will raise interest rates this week for the last time before October, after suspending interest rate hikes.

On September 5th, Beijing time, the Asian market morning, the US dollar index fluctuated narrowly, and is currently trading around 104.17. The safe-haven US index fell on Monday, closing down 0.16% at 104.11. China's policy stimulus or the prospect of stabilizing the economy has improved risk sentiment, while the US employment data is boosting bets that the Federal Reserve may be at the end of the rate hike cycle.

U.S. markets were closed on Monday, liquidity may be scarce, and traders were hesitant to place large bets.

FXTFriday's data showed that US job growth picked up in August, but the unemployment rate jumped to 3.8 per cent, while wage growth was modest. A flurry of economic data highlighting slowing inflation and a slumping labour market has reinforced hopes that the US economy is cooling but not slowing sharply, boosting hopes of a soft landing.

The CME FedWatch tool shows that the market forecasts a 93% chance that the Federal Reserve will maintain interest rate stability this month, and a more than 60% chance that it will not raise interest rates this year.

Looking to the future, investors will focus on the talks to be delivered by a number of Federal Reserve officials this week for clues on what the Fed will do at its next policy meeting on September 19-20.

The euro, which has depreciated by nearly 12% this summer, rebounded slightly against the dollar on Monday, closing up 0.20% at 1.0795.

European Central Bank President Christine Lagarde said on Monday that central banks must maintain inflation expectations at their target levels amid shifts in labor and energy markets and price volatility caused by geopolitical turmoil.

European Central Bank Executive Director Isabel Schnabel said last week that growth in the euro zone was weaker than forecast a few months ago, but that did not mean further rate hikes were unnecessary, especially as markets were offsetting some of the ECB's efforts.

Jane Foley, head of FX strategy at Rabobank, added: "In general, the ECB will remain hawkish, in part to prevent market rates from falling prematurely, and the euro may get a slight boost from this expectation. Schnabel's comments provide an insight into this."

British Chancellor of the Exchequer Jeremy Hunt said at the weekend that inflation could be halved by the end of 2023 and vowed to focus on that goal when setting priorities before parliament reopens after the summer recess.

Revised U.K. data released on Friday showed the economy recovering from the epidemic faster than previously thought. Sterling rallied against the dollar on Monday before closing up 0.27 percent at 1.2620.

Overall inflation in the UK is falling, but the real headache for the Bank of England is the labour market. While there are clear signs that the UK has passed the peak of last summer's tightening, the labour market has not cooled as quickly as the central bank had hoped. In line with this, private sector wage growth has climbed to record highs, raising the risk that inflation will stabilise above target over the medium term.

The Bank of England has made it clear that it would rather do too much than too little.Analysts believe this means the Bank of England will raise interest rates to 5.75 per cent in November, and a cut in 2024 is also unlikely as the central bank puts pressure on potential cost pressures.

The Australian dollar also rallied on support from China's economic support measures. The Australian dollar closed up 0.16% against the dollar on Monday at 0.6459.

The Reserve Bank of Australia will hold a policy meeting on Tuesday and is expected to stay putMarket surveys show that all but two of the 36 economists believe the Reserve Bank of Australia will leave the overnight borrowing rate unchanged at 4.10% on September 5

The dollar closed down 0.01 per cent at 1.3589 against the Canadian dollar on Monday. It was up 0.08 per cent against the Canadian dollar in early Asian trading on Tuesday, trading around 1.3600.

The Bank of Canada will hold a policy meeting this week and is expected to keep interest rates unchanged. However,Goldman Sachs said that the Bank of Canada will raise interest rates this week for the last time before October, after suspending interest rate hikes.

Isabella Rosenberg, a Goldman Sachs analyst, said the Bank of Canada would view the latest data as "an encouraging signal that the latest rate hikes are working through the economy", having previously thought the chances of a rate hike at the September meeting were "pretty high".

FXXsummary of opinions

1. TD Securities: It is predicted that the Reserve Bank of Australia will not signal a hawkish stance in its statement on Tuesday.

TD Securities does not expect the Reserve Bank of Australia to release a hawkish stance signal in the resolution statement released today, otherwise, the Australian dollar will rise to 0.6530 against the US dollar; TD expects a 60% chance of a neutral statement and a 20% chance of a dove or a hawk.

2. Julius Baer Research: The European Central Bank may not raise interest rates further in September.

① David Kohl and Stephanie Kennedy, analysts at Julius Baer Research, said in a note that the ECB may decide not to raise interest rates further at its September meeting because they have become restrictive enough. They said that current monetary policy appears restrictive enough to curb demand and slow lending activity, thus ensuring lower inflation in the coming months.

The money market is pricing in a 76% chance that the ECB will leave interest rates unchanged at this month's meeting, implying a 3.75% deposit rate and a 24% chance that the ECB will raise interest rates by 25 basis points.

3. National Australia Bank: believes that the Reserve Bank of Australia will feel the need to further tighten monetary policy.

Taylor Nugent, economic analyst at NAB, said: "In August, the RBA saw a credible path back to target for inflation at 4.10 per cent. When we look at the flow of data since then, we don't see anything that would divert them from that assessment. Risks remain to the inflation outlook and third quarter data will show that some of the strong momentum in services inflation will continue... We think they will feel the need to tighten further."