Talking Points:

- RBA policy meeting may come and go with much ado about nothing; rates markets aren’t pricing in any policy action this year.

- Light calendar out of Europe this week; account of ECB’s September meeting may prove to offer guidance on tapering concerns.

- Friday’s US labor market report should confirm that the US economy remains on track to stay at “full employment,” which will keep December rate hike expectations intact.

Join me on Mondays at 7:30 EDT/11:30 GMT for the FX Week Ahead webinar, where we discuss top event risk over the coming days and strategies for trading FX markets around the events listed below.

10/03Tuesday | 04:30 GMT | AUD Reserve Bank of Australia Rate Decision

The Reserve Bank of Australia is expected to keep rates unchanged at 1.50% on Tuesday as the country’s growth outlook has stabilized. The labor market continues to improve gradually, and it is expected that the unemployment rate will fall further in the coming years. However, with real wage growth struggling, Australian consumers face some challenges ahead. The central bank is therefore unlikely to want, or need, to change its policy stance in the near future. Rates markets are not pricing in any shift in policy at any point in 2017.

Pairs to Watch: AUD/JPY, AUD/NZD, AUD/USD

10/04Wednesday | 14:00 GMT | USD ISM Non-Manufacturing/Services Composite (SEP)

The September USD ISM Non-Manufacturing/Services headline reading is expected at 55.5 versus a prior reading of 55.3. The relatively similar headline reading expected this Wednesday is indicative of currently favorable business conditions that are easing off the strong burst in sentiment that has been so prevalent in US markets. The US Dollar should show heightened sensitivity to this report given the economy’s tendency to follow the performance of the service sector, which accounts for approximately two-thirds of jobs in the United States. Look for the data, in conjunction with the ADP Employment report, to shape expectations for Friday’s Nonfarm Payrolls report.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

10/06 Friday | 12:30 GMT | CAD Full-time Employment Change & Unemployment Rate (SEP)

Canadian unemployment held near cycle lows in August, at 6.2%, but a small reversal is expected in this Friday’s report. The unemployment rate is expected to increase back to 6.3%, with net jobs growth of +14K, down from +22.2K last month. With the Bank of Canada already having hike twice this year and rates markets flirting with the idea of a third one by December, a strong Canadian labor market report would do well by the Loonie to help stoke rate hike speculation.

Pairs to Watch: CAD/JPY, USD/CAD

10/06 Friday | 12:30 GMT | USD Change in Nonfarm Payrolls & Unemployment Rate (SEP)

The key issue surrounding the September US Nonfarm Payrolls report is whether or not the US labor market will continue to indicate that it is 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 4.4%, and the headline jobs figure to come in at +177K. 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, 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 4.4% longer term unemployment rate, the economy only needs +113K job growth per month to sustain that level through the end of 2017.

Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold

Read more: What Does the Fourth Quarter Hold for the Dollar, Equities, Oil and Other Key Markets?

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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