Forex Major Currencies Outlook (Oct 10 – Oct 14)

USD

September ISM manufacturing PMI report printed another decline as it came in at 50.9 vs 52.5 as expected and 52.8 the previous month. Employment and new orders components dropped into contraction territory while new export orders slipped deeper into contraction. On the positive side, prices paid index slid to 51.7 from 52.5 the previous month continuing to show that inflation pressures are dissipating.

ISM Non-manufacturing in September came in at 56.7 vs 56.9 in August but still a very strong reading. Prices paid and supplier deliveries indexes dropped indicating that price pressures are declining and supply chains are improving. Employment printed a healthy 53 vs 50.2 in August thus showing the highest reading since March. New orders have slightly declined but are still above 60 and inventories continue to fall signalling positive input for new orders in the future. Exports have increased showing a healthy foreign demand for the US services.

NFP for the month of September printed yet another strong report. The headline number printed 263k vs 250k as expected. The unemployment rate dropped to 3.5%, record low, from 3.7% in August. Participation rate ticked down to 62.3% from 62.4% the previous month. U6 rate also dropped from 7% the previous month to 6.7%. Average hourly wages came in at 0.3% m/m and 5% y/y. Leisure and hospitality added 83k jobs, education/health care 90k with professional and business services adding 46k. The report will add increase the probability of a 75bp rate hike at November meeting. JOLTS job openings report for August came in at 10.053m, down from 10.775m in July. This marks the biggest monthly fall in history or this reading (740k).

The yield on a 10y Treasury started the week at 3.8% dropped during the week to as low as 3.56% then risen to 3.89% after NFP. The yield on a 2y Treasury started the week at 4.2% during the week. Spread between 2y and 10y Treasuries reached -48bp during the week. FedWatchTool sees the probability of a 50bp rate hike in November at 22.4% and probability of a 75bp rate hike at 77.6%.

This week we will have FOMC minutes from the latest Fed meeting, September inflation and consumption data.

Important news for USD:

Wednesday:

• FOMC Minutes

Thursday:

• CPI

Friday:

• Retail Sales

EUR

Final manufacturing PMI data for the Eurozone in the month of September came in at 48.4, a tick down from 48.5 as preliminary reported. Surging energy costs are wrecking havoc on manufacturing as both German and French reading printed below 48. Final services PMI came in at 48.8, down from 49.8 in August indicating that Eurozone is sinking deeper into contraction and almost inevitable recession. French reading represented a high point as it moved further into expansion territory, but German services printed abysmal 45. Composite came in at 48.1 vs 48.9 in August.

GBP

Final manufacturing PMI data for the month of September came in at 48.4 vs 48.5 as preliminary reported. Declining foreign demand combined with surging energy costs is weighing on manufacturing activity. A small positive is that the reading improved from August low of 47.3. Final services reading printed exactly 50, right on the border between expansion and contraction. Services PMI has been in expansion territory since February of 2021. Composite dipped further into contraction with 49.1 print.

This week we will have employment data.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

AUD

RBA surprised the markets and slowed down the pace of their rate hikes. This week’s rate hike was 25bp while 50bp was a consensus. The cash rate is now at 2.6%. The board stated that cash rate has been increased substantially during the short period of time and that smaller rate increase will help achieve more balance between supply and demand. The statement showed “the Bank’s central forecast is for CPI inflation to be around 7¾ per cent over 2022, a little above 4 per cent over 2023 and around 3 per cent over 2024.” and board is committed to bringing inflation back into 2-3% target range. Future rate hikes are expected and board will continue to pay attention to labour market and inflation when making further decisions.

This week we will have inflation and trade data for the month of September.

Important news for AUD:

Friday:

• CPI (China)
• Trade Balance (China)

NZD

RBNZ delivered yet another 50bp rate hike as expected and lifted the official cash rate to 3.5%. Members of the Committee agreed that additional tightening of monetary conditions is needed in order to bring inflation back into targeted range of 1-3%. There was a debate whether to hike by 75bp or 50bp and members agreed that going with a 50bp rate hike is the proper way. Members acknowledged that recent falls in oil prices led to headline inflation slowing down in may developed economies, however core inflation numbers still remain high. Labor shortages are keeping production constrained and lead to higher wage pressures. First dairy auction of October printed a decline in price of -3.5%, a fall after two consecutive auctions of rising prices.

CAD

After three employment reports showing drops in employment the September reading printed an increase of 21k jobs. The unemployment rate dropped to 5.2% from 5.4% in August. Participation rate ticked down to 64.7% from 64.8% the previous month. Full-time employment came in at 5.7k while part-time employment contributed with 15.4k jobs. Wages slid to 5.2% y/y but it is a fourth consecutive month of prints above 5%. The report confirms governor Macklem’s statement that labor market remains very tight.

JPY

Inflation data for the Tokyo area in the month of September showed headline number tick down to 2.8% y/y from 2.9% y/y in August, however core measures showed higher readings compared to previous months’. Ex fresh food category came in at 2.9% y/y vs 2.6% y/y while ex fresh food, energy rose 1.7% y/y vs 1.4% y/y in August. Although increases in inflation are a welcome sign for BOJ they will not be inclined to act and hike rates at the November meeting.

Final services PMI reading for September saw it return to expansion with 52.2 reading, up from 49.5 the previous month. Composite was also lifted back into expansion with 51 vs 49.4 in August. The report shows announcement that foreign restrictions on tourism will be lifted in October as main catalyst for optimism across the services sector.

CHF

SNB total sight deposits for the week ending September 30 showed a huge decline. They came in at CHF669.6bn vs CHF747.1bn the previous week. The decline of CHF77.5bn indicates that SNB was forced to sell EUR and USD as depositors were removing funds from banks. September inflation numbers showed headline inflation unchanged from August at 3.5% y/y as expected with core staying unchanged for the third straight month at 2% y/y.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}