Busy week for traders loaded with major data releases and central banks policy decisions. The US Dollar traders will be watching for the PMI data for both the manufacturing and services sectors, while the highlight event will be the NFP release on Friday. The Reserve bank of Australia and Bank of England will also hold their policy meeting for August this week, with no policy changes expected from either. Employment data in Canada and New Zealand are on the calendar as well.
Will the NFP help the Dollar?
The greenback took a hit last week, after Fed Chair Jerome Powell downplayed inflation spikes and stressed that employment is still far from recovering. Such comments have caped hopes for any tapering in the upcoming meetings. However, the fact that the Fed acknowledges the progress made so far keeps markets watching data closely for any surprising performance.
The US economy is expected to add 895K jobs in July, after adding 850K back in June. Average Hourly Earnings to stabilize at 0.3% on a monthly basis, while rising from 3.6% to 3.9% annually. Unemployment Rate is expected to fall from 5.9% to 5.7%. Positive data to offer fresh support for the dollar as it may revive hopes for a possible tapering announcement in September.
The manufacturing sector is expected to continue growth at 60.8 points in July, while the services sector is expected to record 60.5 points.
Can Inflation Surges Change RBA’s Plan?
The Reserve Bank of Australia will hold its policy meeting on Tuesday, with no changes expected. In the previous meeting, the bank hopefully declared its intention to slow down asset purchases if the economy continues to surprise. However, the new pandemic lockdowns may change the scene for the RBA.
So, the bank will probably stick to a cautious and neutral tone this time and despite recent inflation data. Data released last week showed that annual inflation rose 3.8% in Q2, compared to 1.1% rise in the previous quarter. Quarterly data also beat expectations and rose 0.8%. Core inflation, that excludes food and fuel data, rose 1.6% annually and 0.5% quarterly. Recent inflation surge may freshen expectations for the Reserve Bank of Australia to consider policy tightening actions sooner. However, given the heightened Covid restrictions, the economic outlook remains uncertain.
BoE to hold on the Neutral Stance
The Bank of England will be meeting on Thursday, and it is expected to keep rates on hold and leave the central bank’s bond-buying programme unchanged. So, traders will turn their attention to the bank’s statement and economic projections, amid signs that a split between the doves and hawks is beginning to emerge on the committee. Recently, some BoE members have declared their support for stimulus withdrawing as inflation already exceeded the bank’s target. While others see that withdrawing stimulus too early will impose bigger risks for the economy rather than supporting recovery.
Employment Data in Canada and New Zealand
The Canadian economy is expected to maintain a strong pace of job creation, by adding 147.5K jobs in July while the unemployment rate is expected to fall to 7.3% from 7.8%. In its July meeting, Bank of Canada kept the interest rates at a record low 0.25%. The bank announced a third cut to its weekly asset purchases to C$2 billion, reflecting the bank’s confidence that growth would rebound strongly in a more sustainable manner. BoC stated earlier that the economy should pick up in the third quarter, after the slowdown caused by the third pandemic wave in the first half of 2021. The central bank has confirmed a flourishing economic outlook now after downside risks associated with the pandemic have significantly diminished.
In New Zealand, Employment Change for the second quarter is forecasted at 0.7%, while unemployment rate is set to ease from 4.7% to 4.5%. The Reserve Bank of New Zealand Surprisingly announced that its QE programme will end on 23 July. The decision reflects a brighter economic outlook that no longer requires extensive monetary stimulus. The economic activity recovered to above pre-pandemic levels, as well as solid growth in both household spending and investments. The bank stated that inflation will be monitored in Q2 and Q3, as more persistent consumer price inflation pressure is expected to build over time. Now, market participants are pricing a 25bp rate hike in August (65%) and an October hike (86%).
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