FX Week Ahead Overview:
- The first week of August sees a typically busy economic calendar, with a global focus after last week’s US-centric offering.
- Both the Reserve Bank of Australia and Bank of England are expected to raise rates by 50-bps this week.
- Jobs reports from New Zealand, Canada, and the US should show that central banks still have more room to raise interest rates.
For the full week ahead, please visit the DailyFX Economic Calendar.
08/02 TUESDAY | 04:30 GMT | AUD Reserve Bank of Australia Rate Decision
The Reserve Bank of Australia has taken a credibility hit in recent months, first with its surprise end to its yield curve control policy then with the unexpected 25-bps rate hike in May. It’s clear that the RBA is slow on the draw compared to other major central banks and must do more to reestablish its credentials. RBA Governor Philip Lowe hasn’t been shy about this, calling recent efforts “embarrassing.” Reading between the lines, the RBA will be a lot more aggressive in the coming months to regain the trust of markets – and it will signal its intentions clearly. A 50-bps rate hike, bringing the RBA’s main rate from 1.35% to 1.85%, will likely be bolstered by clear forward guidance indicating more rate hikes ahead, which would be a positive development for the Australian Dollar.
08/02 TUESDAY | 22:45 GMT | NZD Employment Change & Unemployment Rate (2Q)
The New Zealand economy has had some fits and starts in 2022, but inflation rates remain near multi-decade highs and the labor market continues to be a bright spot. According to a Bloomberg News survey, New Zealand employment change increased by +0.4% q/q in 2Q’22 from +0.1% q/q in 1Q’22, while the unemployment rate eased to 3.1% from 3.2% – a fresh multi-decade low. The data may help reinvigorate Reserve Bank of New Zealand rate hike odds, which while still showing expectations for a rate hike at every meeting in 2022, have eased back in 2023.
08/04 THURSDAY | 11:00 GMT | GBP Bank of England Rate Decision
The Bank of England is likely to raise rates by 50-bps this week, bringing their main rate to 1.75%, according to a Bloomberg News survey. But much like the Federal Reserve last week, a rate hike may not be enough to keep the British Pound pointed higher. Instead, focus is on the BOE’s forward guidance: how many more rate hikes are coming down the pipeline. Given the BOE’s carefully worded statements in the past, which have focused on balancing concerns between growth and inflation, it’s possible that a 50-bps rate hike proves disappointing: UK Gilt yields could fall and the British Pound could weaken thereafter.
08/05 FRIDAY | 08:30 GMT | CAD Employment Change & Unemployment Rate (JUL)
According to a Bloomberg News survey, the Canadian economy added +20K jobs last month after losing -43.2K jobs in June. The job gains may not be sufficient to keep up with workers entering the labor market, however, as the unemployment rate is anticipated to rise to 5% from 4.9%. The mix of data is unlikely to move the needle for the Bank of Canada in either direction, which has previously suggested that it is front-loading interest rate hikes to try to nip inflation in the bud. A weak Canada jobs report could prove troublesome for the Canadian Dollar, given the BOC’s stance.
08/05 FRIDAY | 08:30 GMT | USD Nonfarm Payrolls & Unemployment Rate (JUL)
A US recession may or may not be upon us, but the US labor market has remained resilient thus far. According to a Bloomberg News survey, the US economy added +250K jobs in July from +372K jobs in June, with the US unemployment rate (U3) holding at 3.6%. The US participation rate is expected to edge higher to 62.3% from 62.2%, while US average hourly earnings are anticipated to come in at +4.9% y/y from +5.1% y/y.
According to the Atlanta Fed Jobs Growth Calculator, the US economy needs +320K jobs growth per month over the next 12-months in order to return to the pre-pandemic US labor market of a 3.5% unemployment rate (U3) with a 63.4% labor force participation rate.
If ‘good news is bad news’ for risk assets as the Federal Reserve recalibrates its policy stance, then ‘good news is good news and bad news is bad news’ for the US Dollar: a strong US labor market report could help revitalize Fed rate hike odds; a weak US labor market report could drag forward rate cut odds in 2023, which would hurt the US Dollar.
— Written by Christopher Vecchio, CFA, Senior Strategist