Key Data to watch on the Economic Calendar this week
Monday:- US: ISM Manufacturing PMI (SEP)
- RBA Interest Rate Decision
- US JOLTS Job Openings
- OPEC+ Meeting
- RBNZ Interest Rate Decision
- US ISM Non-Manufacturing PMI (SEP)
- EU Retail Sales (AUG)
- Canada Employment Change (SEP)
- US Non-Farm Payrolls (SEP)
USD — Strong NFP isn’t always a good sign
Following the recent turmoil over worries about the UK economy, traders may find the upcoming nonfarm payrolls report to be a welcome distraction as central banks continue to hike rates. In the United States, however, attention will be focused on the ISM manufacturing and non-manufacturing PMIs due on Monday and Wednesday, respectively.The American economy shows no signs of material damage despite three consecutive quarter-point rate increases by the Fed. The ISM PMIs have held up relatively well despite discrepancies between business surveys. In the event that this continues into September, market bets on a 75-bps gain in November would be confirmed.
A more important criterion for the Fed is the labour market. While inflation and the labour market remain strong, the Fed will see no reason to slow down the pace of tightening. It is therefore likely that Friday’s jobs report will be a major deciding factor before the decision in November. The consensus estimate for September is for nonfarm payrolls to have increased by 250k compared to 315k in August. In September, average hourly earnings are expected to have increased by 0.3% month-over-month, while the unemployment rate is expected to remain at 3.7%.
Although a strong labour market is essential in maintaining confidence in the economy, investors would probably welcome a slight cooling down at this point as this could pave the way for the Fed to move into a lower gear, potentially putting a break on the dollar’s advances. Conversely, a further strong report may worsen the turmoil in bond and equity markets, boosting the dollar as bets on a more aggressive Fed rise.
AUD — RBA may begin to ease off the brakes
Following four consecutive increases of 50 basis points, many are expecting the Reserve Bank of Australia to increase interest rates by 25 basis points in October.According to Governor Lowe, the Bank is getting closer to the point where it won’t have to raise interest rates by 50 bps anymore, but the exact distance will likely be determined at the meeting. Due to the RBA’s previous tightening and the fact that the RBA meets more frequently than other central banks, a 25-bps increase seems reasonable. However, policymakers may not want to let up on their fight against inflation as markets have been turbulent and the Australian dollar has been falling.
Nonetheless, even if the RBA raised rates by 50 basis points, it would not necessarily boost the aussie and it would remain vulnerable to a risk-on market environment.
NZD — RBNZ will likely maintain 50-bps increments
On Wednesday, the Reserve Bank of New Zealand will announce its policy decision. It is expected that the RBNZ will maintain the pace of raising the cash rate by 50 basis points, similarly to how it did in the last four meetings. In spite of this, they’ve priced in an approximately 20% probability of a 75-bps rate hike, which appears highly unlikely given that New Zealand’s rates are already among the highest in the world’s major advanced economies.Moreover, Governor Adrian Orr has recently remarked that despite the fact the tightening cycle is “very mature”, he also stressed that there is still work to be done through the rest of the year.
Last month, the RBNZ raised its forecast for the terminal rate to 4.1%, suggesting another 100–125bps of rate hikes by mid-2023. There is a possibility that policymakers will opt for an even bigger 75 bps in light of the dramatic fall of the New Zealand dollar, but that could result in a further slump in the country’s housing market.
CAD — October jobs report reveals hike size
Keeping with commodity-linked currencies, Friday’s unemployment numbers will be a highlight for the Canadian dollar. As with the RBA and RBNZ, the Bank of Canada is likely to face a similar dilemma when it meets in just under a month, and the October employment report will offer clues about how much to raise rates.As Canada’s economy has lost jobs for three months in a row, the odds of another 25-bps rate increase may rise if September’s reading is even worse than expected. However, even then, the consensus is likely to remain at 50 bps, as the Bank of Canada hasn’t shifted its hawkish tone. Thus, the loonie is unlikely to react much to the data.
Source: Weekly Market Outlook: RBA & RBNZ Rate Hikes, NFP Report in Focus!