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Weekly Market Outlook: Will the NFP Boost the US Dollar?

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Weekly Market Outlook

All eyes turn to the US data this week, with the NFP in focus as market participants are expecting a continued recovery in the labor market. Fed Chair, Jerome Powell, will testify before the congress and comments will be watched for any possible hints about monetary policy path. Key data releases on the economic calendar include GDP figures in Australia and Canada. Meanwhile, OPEC+ meeting is expected to provide guidance into the oil production plans.

Will the NFP Boost the US Dollar?

The NFP report is scheduled on Friday, and is expected will likely reveal continued recovery in the US labor market for the 11th consecutive month. The US economy is expected to add 550 thousand jobs in November backed by strong labor demand and the solid economic expansion. The unemployment rate to fall further to a new pandemic low of 4.5%. Hourly earnings to grow by 0.4% for the second consecutive month and accelerate on annual basis from 4.9% to 5%.

The US Dollar has been boosted by the robust economic performance, tightening labor market and increasing odds for a sooner rate hike. The DXY index is up 6.8% YTD as the Fed stepped into the tightening cycle and possibly upcoming rate hikes in 2022.

The Fed Chairman, Jerome Powell, to testify on CARES Act before the US Congress for two consecutive days. However, his comments will be monitored closely for any clues about how the pandemic situation can impact the anticipated policy steps. Powell stated earlier that the bank can be patient on rate hikes but will not hesitate to act if inflation remains elevated. Market participants are pricing in two rate hikes in 2022, and possibly a third one if the economy continues to surprise on the upside.

At its November meeting, the Fed announced tapering the monthly pace of its net asset purchases by $10 billion for Treasury securities and $5 billion for agency mortgage-backed securities from the current $120 billion a month. The statement stressed that Fed’s policy is not on a preset course, and the bank will act if necessary.

The US Calendar also include the ISM PMI surveys for November that are expected to confirm the steady expansion in both the manufacturing and services sectors. Another notable release is the ADP employment change on Wednesday.

The Loonie Awaits GDP and Employment Figures

Elsewhere, the Loonie will watching for key data releases this week including the GDP figures and employment report. The Canadian economy is expected to expand 0.7% in September, following a 0.4% expansion rate in the previous month. On a quarterly basis, the GDP to print a 2.5% growth in the third quarter recovering from 1.1% contraction in Q2.

The job market is expected to add 39 thousand jobs in November with the unemployment rate ticking lower from 6.7% to 6.6%.

The economic resilience pushed the BoC to let go of its QE programme and is expected to begin rising interest rate the next year. However, the upcoming data will show how strongly the economy redounded in the September quarter.

Weekly Market Outlook

The Bank of Canada decided in its October meeting to end the quantitative easing programme given the progress made in the economic recovery. The bank kept its overnight rate at 0.25%, as widely expected, and expects it to remain at the current level until sometime in the middle quarters of 2022 when the 2% inflation target is anticipated to be sustainably achieved.

The board judges that the economy continues to require considerable monetary policy support, retreating its commitment to hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s projection, this happens sometime in the middle quarters of 2022. With elevated inflation and steady economic growth, market participants are pricing in for a sooner rate hike.

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