RBA, BCE and BoC Avanti rate decisions

Fundamental US Dollar Forecast: Neutral

  • USD tumbled after nonfarm payrolls signaled a losing bet on the Fed’s phasing out.
  • balance of households is quite light, focusing on other news
  • main risks from external events include the rate decisions of the RBA, the ECB and the BoC.

US Dollar Reaction to Non-Farm Payroll Data, Key Implications

US dollar weakened after Friday’s non-farm payroll report. expectations largely disappointed. This drove my USD based index of major companies to its lowest level since July levels in the chart below, leaving behind 2 weeks of disappointing price action. nation only added 235,000 jobs compared to the 733,000 forecast, as the unemployment rate fell to 5.2% from 5.4%, as expected. Average hourly earnings surprised to the upside, even at 4.3% year-on-year.

With that in mind, this report likely dampened expectations that the Fed could begin easing monetary policy this month. This follows President Jerome Powell’s complacent comment on the job market. Furthermore, more data on employment could delay any long-term rate hike. This is perhaps why the long-term 10-year Treasury yield won after the employment report.

Risk of external events: RBA, ECB, BoC rate decisions

With nonfarm payroll data now behind us, the focus for the dollar is likely shifting to the risk of external economic events. This is because the home calendar is quite light and quiet. Dallas Fed Chairman Robert Kaplan will speak later this week. Traders are likely to tune in to see what he has to say about the job market and what it could mean for future politics.

Next week, the Reserve Bank of Australia (RBA), the European Central Bank (ECB) and the Bank of Canada (BoC) will release their latest monetary policy announcements. Recent economic developments in Australia, the euro area and Canada could chart increasingly divergent paths on how their central banks might adopt the post-Covid QE easing approach.

Starting with Australia, expectations rise that the nation will see GDP shrink in the third quarter after tight lockdowns across the country. This has generated bets that the RBA could reverse its decision to reduce weekly asset purchases by the end of the year. That said, the central bank surprised some investors last month when it stayed true to its original plan. situation remains fluid and ripe for AUD / USD volatility.

Meanwhile, a strong euro zone inflation report last week likely carried forward expectations of a reduction in ECB policy. This has caused German 10-year yields to rise to levels last seen in mid-July. EUR / USD also hit its highs since the end of July. Investors will be watching the inauguration of ECB President Christine Lagarde, as well as her peers.

In Canada, an unexpected contraction in GDP in the second quarter cooled bets on a reduction in monetary policy earlier than expected. central bank has already partially reduced asset purchases. A relatively dovish approach could weaken the Canadian dollar in favor of the US dollar. With this in mind, the dollar is likely to focus more on external shock risks, creating an uncertain outlook for the next week.

US dollar index versus 10-year government debt yield spreads

Chart created in TradingView

– Written by Daniel Dubrovsky, Strategist for DailyFX.com

To contact Daniel, use the comment section below or @ddubrovskyFX at

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