CAD
After some jitters to start the week, rebounding equities and an otherwise sparse data calendar have seen sustained loonie appreciation in advance of today’s jobs report. This afternoon’s data should offer a shift in narrative for the Canadian dollar, however, with markets expecting the unemployment rate to tick up 0.1pp to 6.5% in July while the hourly wage rate for permanent employees is projected to fall from 5.6% to 4.8%. Granted, consensus, also projects that 25k jobs were added in July too. But this is hardly enough to offset rapid labour force growth, if realised, pointing to a further softening in the labour market on net. All told, then barring a notable upside surprise, this afternoon’s releases should point to continued soft growth and further disinflation, keeping the BoC on track to cut rates at every remaining meeting this year, and seeing the loonie reverse some recent gains.
USD
With traders’ attention squarely focused on the US labour market, yesterday’s initial jobless claims data unsurprisingly garnered significant attention. The 233k print undershot expectations and marked a decline from the 250k reading seen last week. This offered some relief to markets still fretting about the risks of a hard stop for the US economy, an outcome that saw the S&P 500 climb 2.3% with the broad dollar also posting modest gains. We think there is further dollar upside coming too, with Fed easing expectations continuing to look too aggressive to us, still suggesting a 44% chance of a 50bp cut from the FOMC next month. That said, gains for the greenback look unlikely before the weekend barring an escalation in tensions in the Middle East. Instead, a quiet data calendar and a blank slate of Fed speakers should keep FX price action limited today.
EUR
Despite retracing modestly lower on Thursday, EURUSD continues to scan as rich. We continue to think that expected rate differentials will widen in the dollar’s favour over the coming few weeks, dragging the pair back towards our month-end target of 1.08. Even so, the lack of market-moving data today means this is unlikely to change ahead of the weekend, barring any surprises. Instead, we look towards next week’s US CPI and eurozone GDP prints as the most notable upcoming catalysts for the pair.
GBP
A blank data calendar should mean a quiet end to the week for sterling, leaving traders left to ponder yesterday’s July REC report on jobs in advance of official labour market data for June next week. Thursday’s data signalled a further slowdown in pay growth, even as permanent placements rebounded, albeit remaining below the 50-no change mark. With this in mind, we see good reason for markets to look through ongoing wage persistence that has been a hallmark of official wage readings and is likely to be visible again next week. Instead, the direction of travel for wage growth should be the focus, and this should point to further declines. The closely watched private sector regular pay measure is almost certain to fall from 5.7% given the soft single-month wage growth reading in May. To us, this leaves swap implied odds of a September rate cut looking overly hawkish at 42%, especially given the dovish signals from Governor Bailey earlier this month. While we expect the broad improvement in risk conditions following this week’s market drama to ultimately translate into sterling upside, next week is likely to see the pound’s climb stymied temporarily on building rate cut expectations.
This content was originally published by our partners at Monex Canada.