FX Markets Turns to Euro-Zone Inflation, Canadian GDP, US NFPs
- The economic calendar is heavier this week, particularly for the US Dollar which will see the always-important US labor market report on Friday.
- UK data take a backseat to their Euro-Zone counterparts in the days ahead; Euro-Zone inflation figures on Wednesday will draw attention.
- Asia-Pacific region rather quiet this week, although that will change once the calendar flips to September.
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08/30 Wednesday | 09:00 GMT | Euro-Zone Consumer Price Index (AUG)
Inflation remains stubbornly low in the Euro-Zone, despite the potential for near-term advances on the headline CPI figures. European Central Bank President Mario Draghi, in remarks at the Federal Reserve’s Jackson Hole Economic Policy Symposium last week, made clear that persistently low inflation may cause the central bank to be more cautious in its stimulus withdrawal. Headline inflation is due at +1.4% from +1.3% (y/y), while core inflation is due in at +1.3% from +1.2% (y/y). A miss here would refocus attention back on Euro strength and how it may be getting in the way of the ECB.
08/31 Thursday | 12:30 GMT | CAD Gross Domestic Product (2Q)
The first look at Canadian Q2’17 GDP growth is expected to show further signs of strong growth, with June forecasts looking for +3.7% (annualized) and at +4.1% (y/y). On balance, these wouldn’t be improvements over the prior readings: year-over-year growth was +4.6% through May; and annualized growth was +3.7% in Q1’17. Nevertheless, these are the types of data that would suggest that the Bank of Canada is right to be thinking about hiking rates by the end of the year, which should prove supportive of the Canadian Dollar.
09/01 Friday | 12:30 GMT | USD Change in Nonfarm Payrolls & Unemployment Rate (AUG)
The key issue surrounding the August US Nonfarm Payrolls report is whether or not the US labor market will remain strong enough to justify a more aggressive pace of Fed tightening. Current expectations for the data are modest, with the Unemployment Rate expected to hold at 4.3%, and the headline jobs figure to come in at +180K. The trend of +200K jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind.
In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view. And, in late-February 2016, she noted that the economy can maintain its current unemployment rate by producing between 75K and 125K jobs per month. By the Atlanta Fed Jobs Growth Calculator, assuming a 4.3% longer term unemployment rate, the economy only needs +115K job growth per month to sustain that level through the end of 2017.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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