As markets approached the end of both September and the third quarter of 2017 on Friday, the US dollar was relatively flat, gold was down once again and still pressured near recent lows, and equities remained strong. The S&P 500 and US small cap indexes hit further record highs on Friday as European equities also continued to rally.
The calendar heats up in the week ahead for the start of October and the fourth quarter with major scheduled events and releases that are highly likely to make a substantial market impact, particularly on the currency markets. Anchoring the week’s calendar will be the heavily anticipated rate decision by the Reserve Bank of Australia, both the US and Canadian monthly jobs reports for September, and key purchasing managers’ index (PMI) data for the US and UK.
Below are some of the major releases and current expectations for the week ahead:
- Monday – UK Manufacturing PMI (56.3 expected), US ISM Manufacturing PMI (57.9 expected)
- Tuesday – Reserve Bank of Australia rate decision and statement (1.50% unchanged interest rate expected), UK Construction PMI (51.2 expected)
- Wednesday – UK Services PMI (53.3 expected), US ADP Private Employment Change (+151K expected), US ISM Non-Manufacturing PMI (55.5 expected)
- Thursday – Australian Retail Sales (+0.3% expected)
- Friday – US Non-Farm Payrolls (+88K expected), US Average Hourly Earnings (+0.3% expected), US Unemployment Rate (4.4% expected), Canadian Employment Change, Canadian Unemployment Rate
Key currencies that may present opportunities on increased volatility include the Australian dollar, US dollar, Canadian dollar, and British pound.
In the run-up to this busy week ahead, the Australian dollar has corrected sharply from its recent highs against the US dollar. The last RBA statement early in September, when the central bank kept rates unchanged as expected, highlighted improving conditions in the Australian and global economies, including strong employment growth. But the RBA also warned of weak wage growth and low inflation. Overall, expectations for any near-term rate hike from the RBA are currently low. On any sustained concerns about low inflation during the next RBA meeting next week, the Australian dollar could correct further.
The US dollar has generally been in recovery from multi-year lows since early September, and has extended that recovery on more hawkish signals from the Fed during its last FOMC statement, increasing expectations of a rate hike in December. The dollar has also been helped by new plans regarding US tax reform from the White House. However, Fed Chair Janet Yellen has lately given some mixed signals, and even went so far as to say that the Fed may have “misjudged” labor market conditions and inflation expectations, which could ultimately warrant a slower rate of policy normalization. Despite these comments, however, expectations of a December rate increase remain high for now, and the US dollar has remained supported in its recovery. Key jobs and PMI data out of the US next week are likely to help clarify both the Fed’s policy path as well as dollar direction.
The Canadian dollar suffered a blow this past week after Bank of Canada Governor Stephen Poloz stated in a speech that there would be “no predetermined path for interest rates,” and then went on to state that “monetary policy will be particularly data-dependent in these circumstances and, as always, we could still be surprised in either direction.” These statements come after the Bank of Canada recently established itself as one of the most hawkish major central banks when it raised interest rates back-to-back in July and September. Poloz’s remarks this past week appeared to back off from this hawkish stance, pressuring the Canadian dollar. As the BoC has apparently become increasingly data-dependent, the Canadian jobs report in the week ahead should be of substantial importance.
Finally, the British pound has been exceptionally strong for much of September, as the Bank of England has been sending hawkish signals on the potential for higher rates and tighter monetary policy in the UK, resulting in a stronger pound. But sterling has recently slowed its advance and pulled back. On Friday, weaker-than-expected economic data out of the UK and a lower GDP revision dealt a further blow to the pound. Despite this disappointment for sterling, one bright spot for the currency was BoE Governor Mark Carney’s reiteration that an interest rate hike should be impending, although these remarks were tempered by his qualification that any rate rise would be to a limited extent. The series of key PMI releases from the UK in the week ahead should help further drive sterling movement in the run-up to the Bank of England’s next meeting in early November.