September is a busy month. For investors, asset price movements will be determined by central bank rate decisions, employment reports and elections. There are no monetary policy announcements this week but inflation and spending reports from the U.S. and U.K. will shape expectations for next week’s Federal Reserve and Bank of England meetings. The Fed has long believed that high inflation is transitory but the longer CPI remains elevated, the less confident central bankers and investors will be about price pressures easing meaningfully. The retail sales report on Thursday will also be important following last week’s surprisingly soft non-farm payrolls number. If spending falls for the second month in a row, the third time in four, investors will push their expectations for a taper announcement to November from September – that talk is already growing.
Labor market numbers are due from the U.K. on Tuesday followed by inflation numbers on Wednesday and retail sales on Friday. According to PMIs, services and manufacturing enjoyed strong job growth in August and reported higher prices. Stronger data should not only translate into Bank of England optimism but could also encourage the central bank to step up taper plans. A recent Reuters poll found economists looking for a sooner than expected rate hike from the BoE. With COVID-19 restrictions eliminated in most of the U.K., the economy is expected to grow by 2.5% this quarter and 1.5% next.
Aside from these reports, Canada’s inflation, Australian employment and New Zealand GDP will be important numbers to watch. All three of the commodity currencies traded higher on Monday. The COVID-19 situation down under remains grim. Australia’s most populous state Queensland which includes Sydney could go into another lockdown following a new cluster of cases. This weekend, new daily infections hit fresh record highs. Much of the country has been under stay at home orders for the past 2 months and the economic consequences of these restrictions will appear in the data like this week’s jobs report which is expected to show major job losses.
New Zealand’s Prime Minister extended Auckland’s lockdown to September 21st to prevent new cases emerging. While second quarter GDP numbers should be good, the manufacturing PMI index which is a more timely measure of New Zealand economic activity should be weaker. The Canadian dollar traded higher on the back of oil, which closed above $70 for the first time since September 3rd. Friday’s labor market report was strong as well, but inflation data this week could be soft.
The top 10 events to watch this week in the FX market are the following:
– UK Employment Report
– US Consumer Price Index
– Chinese Retail Sales & Industrial Production
– UK Consumer Price Index
– Canada Consumer Price Index
– New Zealand Q2 GDP Report
– Australian Employment Report
– US Retail Sales
– UK Retail Sales
– US University of Michigan Index
Managing Director of FX Strategy BK Asset Management