Inflation Worries to Boost Gold and US Dollar?

Wall Street is confident of moving forward despite economic uncertainty, as the stock market is booming.

However, last Monday (November 15), commodity strategists at JPMorgan told clients that rising inflation catalysts appear to be working and are unlikely to disappear any time soon, suggesting that there are still fears over the future.

US consumers

Last week’s data revealed that US consumer prices are still rising at the same pace as they have been for the last three decades. This triggered gains in both Gold and the US Dollar. According to Tyson Foods, inflation is not expected to decline anytime soon, and prices will likely rise for the foreseeable future.

Gold is a popular hedging medium for investors who want to protect themselves from inflation over the long term. Because it is a tangible asset with limited supply, monetary erosion caused by rising prices is less likely to occur.

Fed rate hike

Asset managers are also favouring the US Dollar due to the inflation outlook. The Federal Reserve may need to raise rates next year to keep prices in check. In turn, the US Treasury’s yields may rise, requiring more dollars from investors.

In addition, DataTrek Research’s Nicholas Colas said in a research note last Tuesday that the rise in the US Dollar also indicates that markets are more confident in the future growth of the US economy compared to other countries.

With the number of coronavirus cases soaring in Europe, countries like Germany are considering new restrictions.

Bank of America

In Bank of America’s survey of global fund managers published last Tuesday, most respondents acknowledged inflation as a risk. However, only 35% believe this is a permanent phenomenon, and 61% believe it is a temporary phenomenon. Source

Nevertheless, rising inflation hedges point to a certain amount of caution at a time when a lot is unknown.


Recently, the New Zealand Dollar has been a standout performer among the G10 currencies. The US Dollar, on the other hand, performed even better, resulting in a significant drop in the NZDUSD market over the last four weeks. The pair will continue to be at the centre of attention this week, owing to significant events in both the United States and New Zealand.

When it comes to the US Dollar, the market is still awaiting President Biden’s announcement on who will be the next Federal Reserve Chair, an announcement which is expected when Biden addresses the nation on economic growth and inflation tomorrow, as the White House wishes to make the announcement prior to Thanksgiving (this Thursday).

Although a rate hike appears inevitable in Wednesday’s RBNZ rate decision, economists appear divided on the scale, predicting 25 or 50 or even 75 basis points. A rate hike of 50 basis points could boost the NZD, but a rate hike of 25 basis points is largely priced in and should not be a mover.

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Adnan Rehman 

Regional Market Analyst

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