Weekly Market Outlook: The holiday season extends to Monday before major releases hit the market by storm on Tuesday. All eyes turn to NFP figures, FOMC meeting, OPEC+ output decisions, and a fresh round of worldwide PMI surveys. Most of global market will be closed on Monday. The first trading week of week usually witnesses high price volatility due to lower liquidity and trading volumes.
NFP Payrolls and FOMC Minutes to Fuel USD Rally
USD traders will be watching for major US releases this week. The Federal Reserve will publish its December meeting minutes on Wednesday. The bank decided to end its bond purchases in March, paving the way for interest rate hikes in 2022. The meeting delivered a hawkish policy approach as more committee members are now advocating rising rates three times in 2022 backed by the steady economic performance and rising inflation.
The US inflation accelerated to 6.8% in November, the highest since the 1980s. It seems like inflationary pressures are not as transitory as previously expected from the Fed. It is unlikely the minutes will show further clarification about the policy path, however, investors will closely watch any clues about the timing of expected rate hikes.
Also, the latest non-farm payrolls scheduled on Friday will be another notable release. The US economy is expected to add 410 thousand jobs in December, with the unemployment rate likely to fall to 4.1%. Monthly job growth has averaged 555,000 by November. Nonfarm employment increased by 18.5 million since April 2020 but is still down by 3.9 million, or 2.6 percent, from its pre-pandemic level in February 2020, according to U.S. Bureau of Labor Statistics.
The US dollar index (DXY) has ended the year with 6.3% gains backed by elevated sentiment, faster recovery, and Fed’s tightening stance. The USD is expected to keep its gains among rivals into the new year. Better-than-expected data will likely boost the DXY performance this week.
Manufacturing and service PMI surveys will also be on the US agenda this week.
The Loonie awaits Employment Figures
The Canadian dollar reversed some of its losses as oil prices recovered from recent lows. The loonie will be watching for employment figures scheduled on Friday. December’s numbers are expected to print a softer pace of job creation at 24.5 thousand jobs, after adding 153.4 thousand back in November. The unemployment rate is anticipated to stabilize at 6% for the second consecutive month.
The Bank of Canada unexpectedly brought its quantitative easing programme to an end in its October meeting 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 Canadian economy has been performing very well and kept its path to fast recovery. Inflation is at new highs; the labor market has almost recovered to its pre-pandemic levels. All is set for the Bank of Canada to signal an upcoming increase in interest rates.
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