Week ahead: September 3rd to 7th 2018

US Employment report as well as RBA’s and BoC’s interest rate decisions
are set to catch the market’s eye.
Next week’s market movers
On Monday, from Australia we get the Retail Sales Growth rate for July.
On Tuesday, RBA’s interest rate decision as well as the US ISM manufacturing PMI for August will be released.
On Wednesday,  Australia’s GDP growth rate for Q2, UK services PMI for August and BoC’s interest rate decision are to keep the markets on their toes.
On Thursday,  though a number of releases is due out, none seems to stand out.
On Friday, the star of the week, the US employment report with its NFP figure could move the markets. In a week where the markets may be preoccupied with further developments on the US-Sino trade relationships, the Brexit negotiations as well as the Swedish elections, a number of financial data
will be released. Our team handpicked the ones which it considers as the most influential and discusses their possible (current) forecasts and their respective effects on various currencies.
On Monday, during the Asian session we get Australia’s Retail Sales growth rate for July. The rate is forecasted to tick down to 0.3% mom if
compared to previous month’s reading of 0.4% mom. Should the rate decelerate as forecasted, we could see the AUD weakening ahead of the
RBA interest rate decision. Arguments for the Aussie weakening in such a scenario would be enhanced as a possible slowdown could
strengthen RBA’s view about household consumption as
a source of uncertainty.
On Tuesday, near the end of the Asian session, RBA’s interest rate decision is to be released. The bank is widely expected to remain on hold at +1.50% as AUD OIS currently imply a probability of 99.65% for that scenario.
Should the bank remain on hold, we could see the market’s attention
turning to the accompanying statement. Concern s
over the international trading tensions could
grow as the US-Sino dispute seems to escalate further,
while the GDP growth rate (due out on Wednesday) could also cause some concern as it is forecasted to decelerate at a rate lower than
the “a bit above 3%”, RBA predicted in its latest accompanying statement. On the bright side, unemployment seems to have dropped further
(as expected), while there have not been further
developments on inflation since the last reading.
Also, the AUD was quite accommodating for the
bank in the past month, weakening even further against the USD in the past month. Overall, we could see the bank trying to strike a neutral tone in its accompanying statement, however it may not be able to escape some dovish tones. Should there be a dovish tone we could see the AUD weakening. Also, please be advised that the bank’s last interest decision, passed as a non-event
for the market as the bank has not hiked rates in two years and does not seem to be planning one, anytime soon. Also on Tuesday, but early in the American session we get the US ISM Manufacturing (Mfg) PMI for August. The indicator is forecasted to drop, reaching as low as 57.7 if compared to previous
month’s reading of 58.1.  Should the PMI drop as forecasted we could see the USD slipping as the indicator is considered as of high impact and a possible
lower reading would mark the second consecutive drop of the
indicator, which could imply a possible further slowdown of the US manufacturing sector.
On Wednesday, during the Asian session we get Australia’s GDP growth rate for Q2. The rate is forecasted to slowdown, reaching as low as +0.7% qoq if compared to previous quarter’s reading of +1.0% qoq. Should the actual rate meet the forecast we could see the AUD weakening as the rate’s
deceleration, would mark a down turn to last quarter’s reading, implying that the Australian economy was growing at a slower pace for Q2. Also the arguments for such a slowdown could be strengthened as the rate is forecasted to slowdown also on a year on year basis. In the European session, UK’s Services PMI for August is due out. The indicator is forecasted
to rise and reach 54.7, if compared to prior month’s reading of
53.5. Should the actual rate meet the forecast we
could see the pound getting some support as the indicator’s rise could imply increasing economic activity for UK’s largest sector of the
economy. Please note that services are of increased importance if t
he ongoing Brexit negotiations are also considered.
In the American session we get Bank of Canada’s Interest Rate decision. The bank is expected to remain on hold at +1.50% and currently CAD OIS imply a probability for the bank to remain on hold at 80.65%
. Should the bank remain on hold as expected, we could see the market’s attention turning towards the accompanying statement.
With inflation running at the top margin of the Bank’s inflation target range, GDP growth rate missing its target by a decimal, but still being at high levels and more than double of the previous quarter and unemployment currently being and forecasted to remain at rather low levels next month, arguments for a more hawkish stance on behalf of the BoC strengthen. Also should there be a conclusion in the ongoing NAFTA negotiations, there could be a stabilization of the basis on which the bank makes assumptions about the economic outlook of Canada. Overall we see the case for the bank to keep a neutral
tone however hawkish elements may be present. And as BoC president Poloz stated to media two days ago, “if US and Canada sign trade deal after strong GDP growth, interest rates could rise”.
On Thursday, a number of financial releases will be made, but we would prefer to comment them in our daily outlook as none is of high caliber.
On an otherwise busy Friday, market focus could be on the US employment report for August. In the US employment report three
indicators stand out and they would be the Non-Farm Payrolls
figure, the unemployment rate and the average earnings growth rate. The Non-Farm payrolls figure is expected to rise reaching 187k if compared to previous month’s figure of 153k, the unemployment figure is forecasted to remain unchanged at 3.9% if compared to previous month’s rate and the average hourly earnings growth rate is forecasted to accelerate slightly,
reaching +2.8% yoy if compared to previous month’s reading of +2.7% yoy.
Should the forecasts be realized we could see the USD getting some support as the report could imply a rather already tight labour market with tendencies to tighten even further. Specifically, should the NFP figure rise as forecasted it could be indicative of new job openings in the US economy, while unemployment remains at one of the lowest levels for a number of years. We
would like to point out the average hourly earnings growth rate though. The forecasted acceleration of the growth rate, despite it being just a ti
ck up, would be indicative of the tightening of the US labour market and could imply further inflationary pressures in the US economy, supporting the Fed’s plans for further rate hikes by the end of the year and in 2019. Please be
advised that increased volatility for USD crosses may occur, at the release of the indicators and under certain circumstances the aftermath of the release, could last longer, dictating the greenbacks direction.