Forex Major Currencies Outlook (Sep 6 – Sep 10)

USD 

ISM manufacturing PMI for August came in at 59.9 vs 58.6 as expected and up from 59.5 in July. Production, backlog of orders, new orders and new export orders continued to increase indicating strong demand for manufacturing products. Prices paid component has declined more than expected from the previous reading indicating waning price pressures. Employment index dropped into contraction with 49 reading. Although manufacturing sector is not big employer it may be a foreshadow of things to come in the NFP. 

Nonfarm payrolls for August was mixed. Headline number was massively underwhelming as it came in at 235k vs 750k as expected. The unemployment rate dropped to 5.2% as expected from 5.4% in July while the participation rate stayed at 61.7%. The underemployment rate also dropped to 8.8% from 9.2% the previous month. Wages improved 0.6% m/m and 4.3% y/y. USD lost around 40 pips against the majors on the headline number. The report shows the impact of Delta on the economy, a drop in hospitality and leisure sectors. We expect Fed to stay on course and announce tapering at their December meeting. Labor day, September 6, is the day when the unemployment benefits are set to expire which should prompt more people to start looking for work adding to the employment numbers. 

EUR 

Sentiment data for Eurozone in August showed a slight slowdown from July figures. Overall economic sentiment came in at 117.5, down from 119 in July while services and industrial sentiment fell respectively to 16.8 and 13.7 from 19.3 and 14.6 the previous month. Final consumer confidence was confirmed at -5.3 as preliminary reported. A small backslide in readings will not have a meaningful impact on Q3 GDP, however it may be a warning sign that recovery peaked. 

Preliminary inflation data for Eurozone in August see headline rise to 3% y/y vs 2.8% y/y as expected and up from 2.2% y/y in July. Core reading came in at 1.6% y/y vs 1.5% y/y as expected and more than doubled from 0.7% y/y the previous month. Headline inflation is propelled by rising energy and food prices while German VAT increase contributed the most to the jump in the core reading. ECB will note that headline reading is coming at a 10-year high, however they will continue to treat the rise as transitory at their September meeting. 

This week we will have ECB meeting. No changes in rate are expected. We see ECB making upside corrections to their growth and inflation projections for 2021 and classifying inflation as transitory, not warranting immediate action. Talks about winding down of PEPP program will become louder with hawks pressing the issue, however we expect the taper to begin in Q4. PEPP should be concluded by the end of Q1 of 2022. 

Important news for EUR: 

Thursday:

• ECB Interest Rate Decision 

GBP 

Final manufacturing PMI for August was improved to 60.3 from 60.1 as preliminary reported and now it shows a small decline from 60.4 in July. The reading shows that the UK is on a good path to post a strong Q3 GDP growth. Supply issues are the main culprit for the slowdown in manufacturing and they are slowly creeping in as rates of increase in input and selling prices are at record highs. Business confidence remains strong among the manufacturers. Services PMI was revised down to 55 from 55.5 as preliminary reported. Many businesses had issues with staff shortages due to the self-isolation rules and it reflected in moderation of business activity. Employment figures showed fastest rise in employment is survey’s history (going on for 25 years). Business optimism is also positive and continues to climb fast indicating positive outlook for the long-term demand. 

This week we will have July GDP data for more information on how the economy has entered into Q3. 

Important news for GBP: 

Friday:

• GDP 

AUD 

Q2 GDP surprised to the upside and came in at 0.7% q/q vs 0.4% q/q as expected. Year-on-year figure printed 9.6%, for a record high, on the back of the base effects. Net exports for Q2 showed a -1pp contribution to the GDP due to rising imports, on the back of reopening in Q2, and sliding exports, most likely due to the slowdown in China. Household consumption was up 1.1%, giving the biggest boost to the GDP (0.6pp) while government consumption was up 1.3%. Public investment jumped 7.4% in Q2 and contributed with 0.4pp to the reading. Incoming data suggests a strong economy going into the Q3, however due to the lockdowns which may go well into the Q4, expectations for the Q3 GDP are not positive. We can see Australian economy contracting in Q3. 

Official PMI data from China for the month of August show effects of reimposed covid restrictions and government crackdown on education and technology industries with non-manufacturing PMI dropping to contraction and coming in at 47.5 vs 52 as expected. This is the first drop into contraction since February of 2020 when the covid crisis began. Manufacturing PMI came in line with expectations at 50.1, barely hanging in the expansion territory and down from 50.4 the previous month. It marks a fifth consecutive month of declines and there will be rough times ahead due to the chip shortages affecting the production. Caixin manufacturing PMI fell into contraction with 49.2 reading vs 50.2 as expected. Covid outbreak caused output, new orders, new export orders and employment indexes to drop into negative territory. Caixin services dropped even deeper into contraction and came in at 46.7, down from 54.9 in July. A huge drop saw business activity and new orders both plunge with covid cases rising. Employment also fell into contraction. The abysmal readings significantly raise the chance of further easing by the PBOC. 

This week we will have RBA meeting. No changes in rate are expected but the taper plans should be delayed in the wake of virus reemergence in Australia. We will also have inflation data from China. 

Important news for AUD: 

Tuesday:

• RBA Interest Rate Decision

Thursday:

• CPI (China) 

NZD 

Prime Minister Ardern extended lockdown for Auckland for additional two weeks. Business outlook for August shows increasingly deteriorating conditions, coming in at -14.2 vs -3.8 in July. ANZ stated that reintroduction of lockdown is the key reason for the poor reading adding that some activity intentions were easing even before the lockdown began. 

CAD 

GDP in June, the final month of Q2, came in at 0.7% m/m as expected, but it was not enough to help overall Q2 GDP. It has, surprisingly, contracted -1.1% annualized. Expectations were for a 2.5% annualized growth. Statistics Canada notes in their report:”Increases in investment in business inventories, government final consumption expenditures, business investment in machinery and equipment, and investment in new home construction and renovation were not sufficient to offset the declines in exports (-4.0%) and home ownership transfer costs (-17.7%), which include all costs associated with the transfer of a residential asset from one owner to another.” A drop in exports was caused by the dwindling auto production and consequently auto exports due to the chip shortages. Projections for July GDP reading do not show a big rebound. The reading has made analyst drop Canada’s 2021 GDP to below 6%. 

This week we will have BOC meeting. No changes in the rate are expected. After a surprisingly week Q2 GDP we will see bank members take more dovish stance. Expectations are for a pause of tapering in September but continuation in October. We will also get employment report. 

Important news for CAD: 

Wednesday:

• BOC Interest Rate Decision

Friday:

• Employment Change
• Unemployment Rate 

JPY 

Consumption in July showed positive signs with retail sales coming in at 2.4% y/y vs 2.1% y/y as expected. The unemployment rate continued to tick down coming in at 2.8% vs 2.9% in June. Strong labor market conditions persist and are source of envy for the rest of the world, however it does not translate into inflation as wages are stagnating and inflation is negative. Q2 CAPEX saw an increase of 5.3% y/y for the first increase in capital investments in five quarters. The reading will lead to upward revision to the Q2 GDP. 

Prime Minister Suga announced his resignation that will be effective from September 30. He stated his desire to fully immerse himself on fighting the virus. Suga’s popularity has been waning and dropped below 30%. Ruling Liberal Democratic Party (LDP) officials said that party-wide elections will be held on September 29. The new leader of The winner of the contest is almost certain to become a new premier because of the LDP's majority in the lower house. The government has been considering holding the general election on October 17. 

This week we will have a final Q2 GDP reading which should be upwardly revised on the back of better-than-expected CAPEX numbers. 

Important news for JPY: 

Wednesday:

• GDP 

CHF 

SNB total sight deposits for the week ending August 27 came in at CHF715.2bn vs CHF715bn the previous week. There is no need for SNB to intervene as markets are doing their job and push EURCHF towards the 1.08 level. Inflation in August rose to 0.9% y/y from 0.7% y/y (headline) and 0.4% y/y from 0.2% y/y (core). Numbers are still very low to warrant any action from the SNB. Q2 GDP showed a modest rebound and came in at 1.8% q/q and 7.7% 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.}