FX.co ★ 03.10.2022: Wall Street ends September in red; USD rolls back. Outlook for USD, USD/JPY, AUD/USD

After the fifth straight rate increase and numerous hawkish remarks of Fed officials, investors realized the regulator would take any measures to tame inflation even if they may undermine the economy.

Now, it is too early to talk about a slowdown in inflation. The Core CPI Index, which excludes food and energy prices, accelerated considerably. In monthly and annual terms, it rose by 0.6% and 4.9%, respectively.

Higher-than-expected inflation figures will force the Fed to hike rates aggressively. If so, it is rather bearish for the equity market.

Richard Barkin assumes that the Fed should persist with tighter policy. It is "far, far away from declaring victory" on inflation.

Mary Daly doesn’t see the economy entering a recession, though she expects things to slow. She said the economy “could teeter,” but “nothing that tips us into a recession this year.” However, she noted that the Fed would take into account fresh macro stats when making rate decisions. Last week, she also voiced concerns about extremely aggressive tightening.

It appears not all Fed officials are 100% hawkish. Some of them made dovish comments, which undermined a rally of the greenback. It has been growing steadily throughout the year amid the expectations of new rate hikes and as a safe-haven asset.

However, in the Asian session, it retreated, hovering at 112.15 ahead of fresh economic reports. It was moving in the downward range of 111.75-112.35. As the Fed has stressed that its further monetary policy decisions will depend on incoming macro stats, the PMI Indices and new comments of Fed officials are now in the spotlight.

Despite the relative weakness of the US dollar, the yen continues to depreciate. Today, it has already crossed the threshold of 145, trading at 145.09.The yen is losing ground even after the BoJ’s attempts to stop its fall last week. The dollar/yen pair is moving the price corridor of 144.49-145.32.

The Finance Ministry disclosed that it spent ¥2.84 trillion in September to slow the yen's slide in its first intervention since 1998. Finance Minister Shunichi Suzuki said again that Japan stands ready to take "decisive" steps in the foreign exchange market if the yen’s excessive moves persist.

The yen is still weaker compared to the US dollar due to the divergence in the monetary policies of the Bank of Japan and the US Fed. This situation will hardly change in the near future.

The weak yen is likely to fuel import and food prices in the short term but boost economic expansion in the medium and long term, the BoJ pointed out.

The regulator believes that the weak yen could help it increase domestic consumption and spur the export potential of small firms.

The Aussie is unable to resume long-term growth because of the Fed’s hawkish stance and fears of a global recession. However, today, it managed to advance to 0.6439. The AUD/USD pair was trading in the upward channel of 0.6400-0.6461.

Although inflationary pressure in Australia has slightly eased, the Business Confidence Index declined to its lowest level since April 2020.

Therefore, the outlook for the Australian dollar remains bearish, especially amid the cost of living crisis and the impact of inflation on the economy.

After the previous close at 2-year lows, the Aussie has slightly recovered as investors are anticipating the results of the RBA meeting scheduled for October 5. The regulator is expected to raise the cash rate by 50 basis points.

Meanwhile, consumer prices in Australia fell to 6.8% in August from a record high of 7% in July on an annual basis. Therefore, traders are sure to take notice of any dovish comments of RBA officials.

www.instaforex.com

FX Analytics - www.instaforex.com/forex_analytics

Forex Calendar - www.instaforex.com/forex_calendar

Forex TV from InstaForex - www.instaforex.com/instaforex_tv

Forex charts - www.instaforex.com/charts

Instant account opening - www.instaforex.com/fast_open_live_account

Forex Trading Contests - www.instaforex.com/forex_contests

List of official InstaForex blogs:

www.facebook.com

www.instagram.com

twitter.com

#forex_news #asian_session #instaforex_tv