Week Ahead in FX: USD to Face Payrolls Challenge

Numerous Economic Indicators to be Released with All Eyes on U.S. Non-farm Payrolls

There is an avalanche of economic indicators next week. The Reserve Bank of Australia (RBA), the Bank of England (BoE) and the Bank of Japan (BoJ) are due to announce their monetary policy decisions. U.S. employment will take center state with the release of the non farm payrolls (NFP) the most followed indicator in forex trading. The ADP private payrolls on Wednesday, August 5 and the U.S. unemployment claims will serve as preliminary data before the highly influential NFP report.

The end of the Greek debt agreement negotiations marked a return of economic fundamentals to the forefront and investors will have to be aware of the various indicators expected to guide currencies next week.

Sunday, August 2
9:45pm CNY Caixin Final Manufacturing PMI
Monday, August 3
4:30am GBP Manufacturing PMI
10:00am USD ISM Manufacturing PMI
9:30pm AUD Retail Sales m/m
9:30pmAUD Trade Balance
Tuesday, August 4
12:30am AUD Cash Rate
12:30amAUD RBA Rate Statement
4:30am GBP Construction PMI
Wednesday, August 5
4:30am GBP Services PMI
8:15am USD ADP Non-Farm Employment Change
8:30am CAD Trade Balance
8:30am USD Trade Balance
10:00am USD ISM Non-Manufacturing PMI
9:30pm AUD Employment Change
Thursday, August 6
4:30am GBP Manufacturing Production m/m
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Official Bank Rate
7:45am GBP BOE Gov Carney Speaks
8:30am USD Unemployment Claims
9:30pm AUD RBA Monetary Policy Statement
JPY Monetary Policy Statement
Friday, August 7
Tentative JPY BOJ Press Conference
8:30am USD Non-Farm Employment Change
8:30am CAD Unemployment Rate
10:00am CAD Ivey PMI

U.S. NFP Could Make or Break September Rate Hike Timing

The United States Federal Reserve provided little clues about the timing on the much-awaited interest rate hike to the U.S. benchmark interest rate. With minimal edits to its statement it gave that impression that a hike would happen sooner (September) rather than later (December). The USD was able to recover from earlier losses as the market priced in the positive yet noncommittal stance by the central bank but was shocked by a disappointing Employment Cost Index (ECI) that exposed the softness in an otherwise strong pillar of the U.S. employment recovery. American wage growth hit a 33 year record low with a 0.2 percent quarter over quarter gain. Given the emphasis that the Fed has put on data and in particular employment data the USD was on the back foot immediately .

The U.S. NFP is forecasted to record a gain of 224,000 jobs to the economy. Employment has been the sole consistent component in the U.S. economy and has kept an impressive pace to bring back several metrics back to pre crisis levels. The downside appears to be the gains are mostly on the headline figures, like the number of jobs created and the rate of unemployment. Wage growth and even the quality of the jobs are still lagging which have been cited as concerns by the central bank. A strong showing in Friday’s jobs report can take the Fed one step closer to announcing the first rate hike. September is the next available FOMC meeting, yet a dissapointing NFP could push it back to December or later. The U.S. economy is not firing in all cylinders and if its strongest engine sputters it could trigger a sell off of the USD.

Wednesday, August 5
8:15am USD ADP Non-Farm Employment Change
8:30am USD Trade Balance
10:00am USD ISM Non-Manufacturing PMI

Thursday, August 6
8:30am USD Unemployment Claims

Friday, August 7
8:30am USD Non-Farm Employment Change

Fundamentals to Take Center Stage Ahead of NFP

RBA to Hold as Pressure Builds with Limited Room to Cut

The Reserve Bank of Australia (RBA) is expected to keep the benchmark interest rate unchanged at record low 2 percent when it meets on Tuesday, August 4. Economic conditions have not improved as the commodity rout continues. Lower demand from China and higher imports from abroad still paint a tough picture for the RBA. The Australian central bank will sit in the sidelines and try to use rhetoric to influence the price of the AUD in an effort to depreciate it further.

The AUD/USD had a net positive week as it advanced 0.15 percent. The USD lost steam after the Federal Open Market Committee (FOMC) and gross domestic product (GDP) had boosted the currency only to face a major reversal as the Employment Cost Index (ECI) showed the smallest gain in 33 years. Given the focus the Fed has given to the employment component this release has raised further doubts about a September rate hike in the U.S.

The RBA cut rates in May with a 25 basis move and with a limited number of cuts possible going forward it will be more cautious on using monetary policy in case of an emergency. The rate hike delay from the Federal Reserve in the United States has forced commodity exporters like New Zealand, Australia and Canada central banks to be proactive in their actions to give their currencies an exporting advantage.

Bank of England to Change MPC Minute Publish Format

The Bank of England (BoE) will publish the minutes of the Monetary Policy Committee (MPC) immediately afterwards the release of the monetary policy decision. BoE Governor Mark Carney had previously announced the change from the traditional two week waiting period. The Thursday, August 6 MPC meeting will mark the first time this is release, and could also see a break from the unanimous vote to keep rates on hold at 0.50 percent.

Positive comments from Governor Carney have hinted at a rate hike later this year, but most forecasts are looking at early next year as a more more likely timing. The U.K. was at one point heavily favored to raise rates ahead of the U.S. but the collapse of oil prices and lower first quarter data have put the Federal Reserve slightly in the lead.

It will be a busy day for the Old Lady as it will release a slew of decisions and reports on Thursday, August 6. Starting with the Inflation Report and finishing with a press conference with the BoE Governor 45 minutes after the release of the MPC statement.

Central Bank events to watch this week:
Tuesday, August 4
12:30am AUD Cash Rate
12:30amAUD RBA Rate Statement
Thursday, August 6
7:00am GBP BOE Inflation Report
7:00am GBP MPC Official Bank Rate Votes
7:00am GBP Official Bank Rate
7:45am GBP BOE Gov Carney Speaks
9:30pm AUD RBA Monetary Policy Statement
JPY Monetary Policy Statement
Friday, August 7
Tentative JPY BOJ Press Conference

*All times EDT