Higher oil prices, with OIL/USD settling above $90/bbl, are exerting pressure on global economies and contributing to a resurgence in inflation. Central banks find themselves in a challenging position, grappling with the dilemma of whether to end their hiking cycles. As we enter a new quarter, markets are eager to see if prevailing themes like 'higher for longer' and the robust US dollar will persist or undergo a reversal. Economic indicators in Q4 will play a pivotal role in shaping the future.
All eyes are on the impending OPEC+ meeting this week, with the possibility of this influential group intervening in the oil rally by increasing the supply. At the time of writing, the price of oil in US Dollars (OIL/USD) stands at 91.58000. The market anticipates that OPEC+ may have a pivotal role in determining the trajectory of oil prices, considering the significant economic repercussions and inflationary pressures stemming from persistently high oil prices.
Friday's Non-Farm Payroll (NFP) release in the United States holds considerable influence over the probability of a November interest rate hike, which currently hovers around 31%. Weakness in the NFP data could almost guarantee a pause or delay in rate hikes. Last Friday's core Personal Consumption Expenditure (PCE) deflator data showed soft readings, adding to the uncertainty surrounding monetary policy decisions.
The oil rally, surging approximately 27% in Q3, has returned prices to November 2022 highs, exacerbating inflationary pressures. This rally is underpinned by upgraded growth expectations in the US and other economies, which fuel increased demand. Moreover, Saudi Arabia and Russia have agreed to further supply cuts in an already tight market, contributing to price gains.
As OPEC+ convenes this week, the focus will center on whether they will reintroduce supply into the market as oil prices settle above $90/bbl. While the group generally seeks higher prices, they must tread carefully to avoid creating a speculative bubble that could deter demand. In the Forex market, traders should monitor this OPEC+ decision closely, as it can significantly impact currency pairs influenced by oil prices, such as USD/CAD and AUD/USD.
The Forex market, intimately tied to oil price movements, is witnessing increased volatility due to the ongoing uncertainty in energy markets. Traders should remain vigilant as they navigate their positions in currency pairs affected by oil price fluctuations. Additionally, geopolitical factors and macroeconomic data releases will continue to play a crucial role in shaping Forex trends in the coming weeks. As central banks grapple with the impact of rising oil prices on inflation, Forex traders should closely monitor any hints or policy changes regarding interest rates, as they can have a profound impact on exchange rates. Keeping a keen eye on developments in oil markets and OPEC+ decisions will be essential for Forex traders seeking to capitalize on the dynamic trading environment.