CAD
USDCAD drifted higher on Thursday, belying the light North American data calendar. In part, this was a function of broader strengthening for the greenback. But, it was nevertheless interesting to see the loonie underperform other currencies with similar sensitivities, in particular, the Norwegian krone. As we see it, this reflects an unwillingness across markets to turn constructive on CAD, given what remains an unfavourable short-term domestic outlook. Moreover, we think this is likely wise, with payrolls front of mind for loonie traders this afternoon., Another move higher for the pair looks the most likely outcome to us.
USD
A US jobs report is the main event for today, and a pivotal release for the Fed. Markets are looking for a headline 150k jobs added in September, with the unemployment rate unchanged at 4.2%. As we see it, a print that matches or beats expectations should serve as an endorsement of the Fed’s dot plot, which remains markedly more hawkish than current swap-implied easing expectations. As such, we think dollar risks this afternoon are skewed to the upside on the prospect of pared-back rate cut expectations. On this point, the Fed’s Williams, speaking just 30 minutes after payrolls are released, will also be closely watched for his response. A miss to either side, accompanied by guidance, could see any market reaction supercharged.
EUR
EURUSD traded with a mild softening bias yesterday, tracking moves for the broad dollar, reflective of the light data calendar. Today, ECB speakers are likely to be the focus for euro traders ahead of this afternoon’s payrolls report. That said, this latter event is key, and looks likely to determine the pair’s fortunes heading into the weekend. Given our view on the probable outcome of this afternoon’s print, we look for another leg lower for EURUSD.
GBP
Sterling offered some dramatic price action on Thursday, shedding roughly a percent against both the dollar and the euro. Behind this move was an interview given by BoE Governor Bailey to the Guardian. In it, Bailey hinted at the possibility of a ‘more aggressive’ path for Bank Rate, a quote that naturally caught headlines and saw a sharp reaction from FX markets. That said, we think the pound’s response was overblown. Reading the article, not just the headline, Bailey’s language was far more nuanced than initially indicated, saying that if the good news on inflation continued, then the Bank could become “a bit more activist”. Recognition of this fact should be sterling supportive today, not least given that BoE Chief Economist Huw Pill is set to speak at 08:55 BST, having previously offered more hawkish views on the path for Bank Rate. A repeat performance should see the pound outperform, making outright gains against the euro, although cable prospects are likely to be determined ultimately by the outcome of this afternoon’s US payrolls report.
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