Forex Major Currencies Outlook (Sep 14 – Sep 18)

USD

Headline CPI in August came in at 1.3% y/y vs 1.2% y/y as expected and up from 1% y/y in July. Core reading came in at 1.7% y/y vs 1.6% y/y the previous month. Rise in energy prices is most responsible for the increase in inflation. Initial jobless claims for the week ending September 5 came in at 884k for a second week of claims below 1 million while continuing claims rose to 13385k.

This week we will have consumption and housing data. Highlight of the week will be the Fed interest rate decision accompanied with economic projections and press conference. After introduction of AIT (Average Inflation Targeting) in Jackson Hole and putting emphasis on employment data investors will look for additional clarification.

Important news for USD:

Wednesday:

• Retail Sales
• Fed Interest Rate Decision
• FOMC Press Conference

Thursday:

• Building Permits
• Housing Starts

EUR

ECB left key policy rates unchanged as was widely expected. PEPP program will continue in the amount of €1.35 trillion with purchases being flexible until the end of the program at the end of June 2021. ECB president Lagarde stated that they will be monitoring the FX rate but that they will not overreact to Euro gains as it is not in their mandate. Rebound in the economy is in line with expectations. Inflation has been dampened by energy prices as well as drop in German VAT. They expect inflation to remain negative until the end of the year before picking up at the start of 2021. Final Q2 GDP reading came in at -11.8% q/q vs -12.1% q/q as reported in the second reading.

This week we will have industrial production data, ZEW survey data and final August inflation data.

Important news for EUR:

Monday:

• Industrial Production

Tuesday:

• ZEW Economic Sentiment Indicator (EU and Germany)

Thursday:

• CPI

GBP

Prime minister Johnson announced October 15 as the deadline date for the EU deal. If the deal is not reached by that date UK will leave on “no deal” and “move on”. Johnson added that the date is chosen so it can be ratified by the year-end. UK will be ready to trade with the EU on WTO trade terms if no deal is reached. October 15 is two weeks earlier than the EU’s self-imposed date of the end of October. Internal market bill, the newly proposed bill which overrides the Withdrawal Agreement and the Northern Ireland protocol, will be debated in the Parliament on September 14. GDP for July came in at 6.6% m/m indicating a rebound at the start of Q3 due to the reopening. Industrial output and construction were stronger than expected, but services were a bit weaker than expected.

This week we will have employment, inflation and consumption data along with BOE rate decision. No change in rate is expected with talks about increase of QE in November being eyed. Continuation of Brexit talks will have a bigger impact on pound as we are entering within a month from the deadline imposed by British government.

Important news for GBP:

Tuesday:

• Claimant Count Change
• Unemployment Rate

Wednesday:

• CPI

Thursday:

• BOE Interest Rate Decision

Friday:

• Retail Sales

AUD

Trade balance data for China in August showed surplus of CNY416.6bn vs CNY386bn as expected. Exports were up 11.6% y/y while imports were down -0.5% y/y. Trade surplus with US on YTD basis, from January to August, is at CNY1.32 trillion. In the dollar terms trade balance came in at $58.93bn with exports rising 9.5% y/y and imports falling -2.1% y/y. Export growth was mainly concentrated in integrated circuits, auto-data processors and textiles, smartphones and household appliances. Exports smashed expectations while imports missing widely raise a concern regarding domestic demand within China. One caveat may be that the biggest drop in imports was in energies and the other that the decline in imports appears to be a function of falling prices. Inflation in August came in at 2.4% y/y as expected easing from 2.7% y/y due to the drop in the food prices.

This week we will have employment data from Australia as well as consumption and industrial production data from China.

Important news for AUD:

Tuesday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate

NZD

September preliminary readings of ANZ business confidence and activity outlook showed significant improvements. The former came in at -26 vs -41.8 in August while the latter came in at -9.9 vs -17.5 the previous month. ANZ stated that many activity indicators are at their highest levels since February, but are still well down compared to pre-pandemic.

This week we will have Q2 GDP reading.

Important news for NZD:

Thursday:

• GDP

CAD

BOC has left the overnight rate unchanged at 0.25% as we expected. They have also left their QE program unchanged at CAD5bn per week and reiterated that they “will hold the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved". In their assessment the rebound in the US has been stronger than expected, while economic performance among emerging markets has been more mixed.

This week we will have inflation and consumption data.

Important news for CAD:

Wednesday:

• CPI

Friday:

• Retail Sales

JPY

Final Q2 GDP reading came in at -7.9% q/q vs -7.8% q/q as preliminary reported. Private consumption was at -7.9% q/q vs -8.2% q/q as preliminary reported but business consumption dropped to -4.7% q/q from -1.5% q/q as preliminary reported. Labour cash earnings in July came in at -1.3% y/y for the fifth consecutive month of declines while household spending plunged -7.6% y/y. Spending has been falling every month since the sales tax hike in October of last year. Core machinery orders for July, a good proxy for capex 6 to 9 months in the future, rebounded to 6.3% m/m from -7.6% m/m in June.

This week we will have industrial production, trade and inflation data along with BOJ rate decision. According to reports BOJ is expected to offer more positive tone on the economy indicating that Japan is recovering from the fallout caused by the pandemic.

Important news for JPY:

Monday:

• Industrial Production

Wednesday:

• Trade Balance

Thursday:

• BOJ Interest Rate Decision

Friday:

• CPI

CHF

SNB total sight deposits for the week ending September 4 came in at CHF702.9bn vs CHF701.6bn the previous week. SNB keeps the steady fight against the unwanted Swissy strength. Seasonally adjusted unemployment rate in August came in at 3.4%.