US Dollar Soars to Three-Week High, Affecting South Africa

  • The US Dollar Index (DXY) continues its recovery, reaching new three-week highs above 102.00, with global markets awaiting key US labour market data releases later this week.
  • The US dollar benefits from the post-ECB weakness in the risk-associated space. However, the data-dependent stance from the Federal Reserve and speculation that the July interest rate hike might be the last in this cycle could apply some pressure to the dollar.
  • Major upcoming US events this week include the final Manufacturing PMI, ISM Manufacturing, Construction Spending, and Nonfarm Payrolls, among others, which could significantly impact the dollar's value and the financial landscape in South Africa.
USD Index

South Africa, like many emerging markets, keeps a keen eye on the US Dollar Index (DXY), which has shown a noticeable recovery, hitting a fresh three-week peak above the significant 1,836.20 ZAR mark (102.00 USD) this Tuesday.

The DXY’s Focus on Crucial Data

The DXY continues its bullish trend from Monday’s session, challenging the 1,836.20 ZAR barrier once more amid a somewhat lacklustre risk environment in the first half of the current week.

Market participants and foreign exchange observers have apparently adopted a “wait-and-see” approach ahead of key US labour market data releases later in the week. The Federal Reserve’s renewed data-dependent position, underscored during the latest FOMC meeting on July 26, adds to the anticipation.

US data to be released include the final Manufacturing PMI from S&P Global, Construction Spending, and the highly significant ISM Manufacturing PMI for July.

Decoding the USD Trajectory

The DXY continues its upward climb with an eye firmly on the crucial 1,836.20 ZAR barrier (102.00 USD).

Meanwhile, the dollar seems to gain support from the post-ECB softness in the risk environment, but it may also face additional pressures due to the Fed’s data-dependent position amid ongoing disinflation and a cooling labour market.

Speculations that the July rate increase may be the last in the current cycle is also expected to apply pressure on the dollar.

What to Watch in the US This Week

Critical US events include the final Manufacturing PMI, ISM Manufacturing, Construction Spending (Tuesday) – MBA Mortgage Applications, ADP Employment Change (Wednesday) – Initial Jobless Claims, Final Services PMI, ISM Services PMI, Factory Orders (Thursday) – Nonfarm Payrolls, Unemployment Rate (Friday).

Topical Issues in the Background

Debate continues on whether the US economy is headed for a soft or hard landing. Terminal interest rates are nearing their peak amidst speculation of rate cuts in late 2023 or early 2024. Geopolitical tensions with Russia and China remain a concern, as well as the ongoing US-China trade conflict.

USD Index Significant Levels

Currently, the index is up 0.08% at 1,836.01 ZAR (101.93 USD). Breaking 1,851.16 ZAR (102.55 USD – 55-day SMA) would pave the way to 1,865.61 ZAR (103.54 USD – weekly high June 30) and finally 1,869.13 ZAR (103.69 USD – 200-day SMA). Conversely, immediate support appears at 1,808.96 ZAR (100.55 USD – weekly low July 27), followed by 1,802.00 ZAR (100.00 USD – psychological level), and then 1,794.32 ZAR (99.57 USD – 2023 low July 13).

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