Market Update by Solidecn.com

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Canadian Dollar Peaks Amid Inflation Concerns

Solid ECN – In December, the Canadian dollar reached its highest level since early August, surpassing 1.335 against the USD. This strengthening is a result of persistent inflation within the Canadian economy, which has reignited expectations for a more aggressive monetary policy from the Bank of Canada. Contrary to market anticipations of a slowdown to 2.9%, headline inflation remained steady at 3.1% in November. Moreover, the trimmed-mean core rate, a key measure of inflation, exceeded forecasts by reaching 3.5%.

These figures support the central bank’s earlier predictions that inflation in Canada is likely to stay high for some time. This situation calls for an extended period of tight monetary policy, possibly including additional interest rate increases. In contrast, the Federal Reserve in the United States has signaled a more cautious approach, with policymakers indicating expected rate cuts totaling 75 basis points for the next year. This difference in policy stances has further amplified the Canadian dollar's rise in value compared to the US dollar.

[Solid ECN]

FTSE 100 Hits 7-Month High on Low Inflation

Solid ECN – On Tuesday, the FTSE 100 experienced a notable increase, rising over 1.5% and reaching a seven-month peak near the 7750 mark. This jump came after the release of inflation data that was lower than expected. The data led to widespread conjecture that the Bank of England might start reducing interest rates as early as March 2023, possibly cutting them by a total of 143 basis points.

The sectors most responsive to interest rate changes were the biggest gainers. Homebuilders saw a 3.6% increase, real estate climbed by 1.4%, and real estate investment trusts (REITs) went up by 1.6%. Additionally, there were significant gains in other areas, with energy stocks growing by 2.5% and banks by 2.1%.

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Nikkei 225 and Topix Index Surge on BOJ's Policy

Solid ECN – On Wednesday, Japan's Nikkei 225 Index saw a significant rise of 1.37%, closing at 33,676, while the broader Topix Index increased by 0.67% to 2,349. This growth continued from the previous session, spurred by the Bank of Japan's decision to maintain its ultra-loose monetary policy. The central bank also avoided any hints of potential changes in the coming year. Governor Kazuo Ueda, in his press conference, emphasized a dovish stance, stating the bank's readiness to implement further easing measures if needed.

Additionally, Japanese stocks were buoyed by positive developments on Wall Street, where optimism grew around the expectation that the US Federal Reserve might begin reducing interest rates next year. This optimism was reflected across almost all sectors in the Japanese market, with notable increases in shares of major companies. Kawasaki Kisen saw a rise of 5.6%, Nippon Yusen surged by 32%, Fast Retailing increased by 3.9%, Shin-Etsu Chemical went up by 4.1%, and Nippon Steel grew by 1.6%.

[Solid ECN]

Rising Aussie Dollar: A Five-Month High

Solid ECN – The Australian dollar has maintained a strong position, staying around $0.675, which is its highest level in nearly five months. This strength is largely due to the dovish (less aggressive) monetary policies of the US Federal Reserve and the Bank of Japan. These policies have put pressure on the US dollar and the yen, in turn boosting other major currencies, including the Australian dollar, commonly referred to as the Aussie.




Furthermore, the Aussie has been positively influenced by an increase in commodity prices. This rise in prices can be attributed to supply disruptions caused by attacks in the Red Sea. Additionally, the possibility of lower interest rates has also played a role in enhancing the overall demand outlook, thus supporting the Australian dollar's value.

Domestically, the situation is also noteworthy. The latest meeting minutes from the Reserve Bank of Australia (RBA) revealed that the central bank had contemplated raising interest rates for a second consecutive month in December. However, the RBA opted to wait for more data before making such a decision, as there were promising signs regarding inflation.

The RBA has also observed that aggregate demand within Australia has slowed more rapidly than they had anticipated. This slowing of demand is coupled with an observation of an accelerating pace of disinflation (a slowing down in the rate of inflation) in other parts of the world. These factors together contribute to the complex economic landscape that the RBA and the Australian dollar are currently navigating.

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[Solid ECN]

Gold's Rise and Resistance: Fibonacci Analysis

FxNews – In the daily XAUUSD chart, gold recently rebounded from the 50% Fibonacci support level. Now, the metal is trading over the 38.2% Fibonacci support, approaching the resistance zone between $2,047 and $2,057.



Delving deeper with the 4-hour chart, we get a clearer picture of gold's market movements. Here, buyers are striving to keep the price over the 38.2% Fibonacci mark. This bullish trend is backed by various technical indicators. For instance, the RSI indicator is consistently above 50, a good sign for buyers. Moreover, the Awesome Oscillator shows green bars, signaling upward momentum. If this trend continues and the current level holds, we anticipate gold might reach the 61.8% Fibonacci resistance.



Conversely, if gold's price falls beneath its current support, this would challenge the current bullish perspective, potentially leading to a decline in its value.

[Solid ECN]

BoJ's Steady Policy Boosts Tokyo Stocks

Solid ECN – On Tuesday, the Nikkei 225 index rose by 1.4%, reaching 33,219, its highest point in two weeks. The broader TOPIX index also saw an increase, finishing 0.7% higher at 2,334. These gains followed the Bank of Japan's decision to maintain its ultra-easy monetary policy, with a commitment to keeping interest rates low. The bank, however, did not provide any clues about potential changes to this policy in the next year. Most sectors ended the day lower, except for basic materials, which remained relatively unchanged. Real estate emerged as the standout sector, leading the gains, followed by technology and non-cyclical industries. Among individual companies, Tokyo Electron saw a significant increase of 3.7%, with Fast Retailing and Recruit Holdings both gaining 2.2%.

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Rand Dips as Dollar Stabilizes

The South African rand is currently trading at about 18.6 against the US dollar, a slight decline from its recent one-month peak of 18.3. This change comes as the dollar finds stability, influenced by several Federal Reserve policymakers who expressed hawkish views. These officials are challenging the extent of the interest rate cuts that the markets were expecting for next year.



In South Africa, the Reserve Bank decided to maintain its main lending rate at 8.25% for the third consecutive meeting on November 23rd, a rate that hasn't been this high in 14 years. The bank continues to highlight ongoing inflationary risks. Notably, the annual inflation rate in South Africa decreased to 5.5% in November 2023. This is a drop from the five-month peak of 5.9% seen in October and brings it nearer to the central bank's target range of 3% to 6%.

[Solid ECN]

Swiss Franc Climbs High, Supported by SNB

Solid ECN – The Swiss franc has risen past 0.87 against the USD, reaching its highest level since the end of July. This surge is partly due to a temporary dip in the dollar's strength and ongoing support from the Swiss National Bank. Recent dovish comments from Federal Reserve officials hinting at potential rate cuts next year have put pressure on the US dollar.



Meanwhile, the Swiss National Bank has been actively supporting the franc by selling off its foreign currency reserves. This strategy helps to mitigate the impact of fluctuating commodity prices and keeps import inflation in check, a crucial tool in combating high price growth in Europe. Latest reports show that the Swiss National Bank's foreign exchange reserves have decreased for the sixth consecutive month, hitting a seven-year low in November. On the policy side, the central bank maintained its key interest rate last week and indicated that, despite a slowdown in the country's Consumer Price Index (CPI), inflation risks are still present.

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BoJ Holds Rates Steady in Year-End Meeting

The Bank of Japan (BoJ) concluded its final meeting of the year with a unanimous decision to keep its key short-term interest rate at -0.1% and the 10-year bond yields close to 0%, as anticipated. The central bank also decided to maintain the flexible upper limit for long-term government bond yields at 1.0%.



Amidst significant uncertainties both domestically and internationally, the BoJ committed to persist with its monetary easing policy. The board emphasized its readiness to adjust to changes in economic conditions, prices, and financial stability. The ultimate goal of the BoJ is to sustainably reach a 2% price stability target, ideally alongside rising wages. The committee also expressed its willingness to implement additional easing measures if necessary. Recently, the central bank governor, Kazuo Ueda, acknowledged that wage growth is trailing behind the increase in prices, casting doubt on the sustainability of the inflation target level.

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