CAD
The emphasis for USDCAD traders to start the week remains Friday’s US jobs figures. This dynamic saw a decent jump for the pair on Friday, leaving the loonie edging towards 1.36 versus the dollar. That said, it will likely be the counterpart Canadian jobs data this coming Friday that ultimately determines USDCAD fortunes this week. We suspect they will be much less positive than those seen south of the border, which if we are right, should help the loonie taking another leg lower heading into next weekend.
USD
Markets enter the new week continuing to digest last Friday’s payrolls report. In short, with 254k jobs added and an unemployment rate that dropped 0.1pp to 4.1%, the US economy appears in a much healthier state than many had thought over recent months. That said, it is also very much in line with our house call over the same period. While we can see risks on the horizon, for now, the US economy remains strong and recession fears look overstated, a perspective that had underpinned our call for a stronger dollar through much of the summer. Markets are increasingly aligned with this view – the DXY index rallied 2% last week to hit levels not seen since mid-August, fuelled by better data and a haven bid.
With this in mind, the focus remains on short-run expectations for Fed easing, which have seen some notable moves. As of this morning, traders now expect just two rate cuts through the remainder of this year, down almost three prior to payrolls. Moreover, we think this week could see further dollar strength. After having been relegated to secondary importance in recent months, Thursday’s US CPI readings take on renewed emphasis following last week’s jobs report. This is particularly true given the upside surprise to earnings growth. At 4.0% YoY, this is too strong to be consistent with the Fed’s 2% inflation target. Until then, Fed speakers should be key for both Fed expectations and dollar fortunes, with Bowman, Kashkari, Bostic, and Musalem all on the docket this afternoon.
EUR
A handful of second-tier data prints should keep the greenback in the driving seat of EURUSD today, after last week’s moves saw the pair dip below 1.10. Indeed, we think events this week should see the pair stabilise around current levels, if not drive a little lower. Specifically, with little data of note out of the bloc, ECB speakers are likely to be front of mind, and they are likely to steer markets towards a step up in the pace of easing considering the weakness in recent eurozone data. This would be an endorsement of current market expectations which see four successive rate cuts from the ECB, maintaining downside pressure on the euro even as the dollar makes some modest headway this week.
GBP
Unlike many other G10 currencies, sterling largely held its ground against the dollar on Friday. This was largely due to the unwind of price action stemming from comments from BoE Governor Andrew Bailey earlier in the week, which while dovish at first glance, appear much less so on further inspection. This morning, the pound has seen little impact from the September REC report on jobs, despite a broad softening in the data. If this is anything to go by, and we think it is, then GDP data later this week is likely to be similarly inconsequential for the pound. Instead, we look for GBP to continue to track sideways against the dollar, implying marginal gains versus the euro, with rate expectations keeping sterling in a holding pattern ahead of CPI, jobs data, and a budget on October 30th.
This content was originally published by our partners at Monex Canada.