Markets week ahead: S&P 500, US dollar, gold, AUD/USD, GBP/USD, RBA, BoE, NFP

Market sentiment continued to brighten this past week as traders rolled back bets on the Federal Reserve’s rate hike path. The benchmark S&P 500 closed July with a gain of over nine percent its best monthly performance since late 2020. A strong performance from Apple and Amazon helped US equities on Friday, gaining 3.28% and 10.36%, respectively.

The US dollar weakened across the board as traders moved into Treasuries, which pushed yields lower, especially along the USD-sensitive short-end of the curve. Still, high inflation and a likely recession pointed to stagflation in the economy, but that wasn’t enough to dissuade risk-taking. The personal consumption expenditures price index (PCE) rose 4.8% y/y, and US GDP growth fell 0.9% in the second quarter on a quarter-over-quarter basis. Gold prices took advantage of the Greenback weakness, with traders pushing XAU to its highest level since July 6 against the USD.

Still, sentiment is likely in a fragile spot, and traders will look for follow-through to confirm the bullishness seen in July. Meanwhile, weakness in economic indicators may continue to elicit a ‘bad news is good news’ response in markets. The US ISM manufacturing PMI gauge for July is set to cross the wires at 52 this week, down from the prior 53 read in June. Earnings reports from several more S&P 500 companies are slated to drop through the week.

The Australian dollar may continue to rise this week but the Reserve Bank of Australia rate decision will be key to the Aussie dollar’s direction. Many believe the RBA fell behind the curve on tackling inflation, which could result in the central bank playing a game of catchup. If so, that would likely help AUD/USD rise further. Analysts expect to see a 50-basis-point rate hike from the RBA on Tuesday.

Elsewhere, New Zealand’s second-quarter employment report is due out. The Q2 unemployment rate is seen dropping to 3.1%, according to a Bloomberg survey. NZD/USD rose over 0.5% last week. The British pound is also set for potential movement on the Bank of England rate decision. A 25-bps hike is expected from the BoE. GBP/USD put in a strong gain of nearly 1.5% last week. Canada’s July employment report and the US non-farm payrolls report will wrap up the week, with the NFP numbers being another potentially high-impact event that could see Fed rate hike bets change.

US dollar weekly performance vs. currencies and gold

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