Highlights:
- US employment situation report
- Bank of Canada (BoC) rate announcement
US jobs data
With US Federal Reserve (Fed) Chair Jerome Powell’s recent speech at the Jackson Hole Symposium confirming that it is time to begin easing policy as well as underlining the importance of the jobs market, this week’s jobs data may help determine how the Fed approaches its easing cycle. Markets are pricing in -33 basis points of easing for September’s meeting. To put that into perspective, there is a 70% probability of a 25 basis point rate cut in September over a 30% chance of a 50 basis point cut. Additionally, investors still forecast -100 basis points of cuts for the entire year (four rate cuts).
Friday’s US employment situation report is key at 12:30 pm GMT. This follows the broad downside surprises across key measures for July (2024), triggering declines in US Treasury yields and the US dollar (USD). According to the Reuters poll, the median estimate for the August non-farm payrolls report indicates 163,000 jobs were added to the US economy, up from 114,000 in July. The unemployment rate for August is expected to ease to +4.2% from +4.3% in July, while average hourly earnings wage growth is estimated to modestly increase in August on both month-on-month and year-on-year measures to +0.3% (from +0.2%) and +3.7% (from +3.6%).
In the event of further softness in data this week, this could swing the pendulum more in favour of a bulky 50 basis point rate cut. This may also further weigh on US Treasury yields and the USD. However, the issue with US equity markets is that bad news may not necessarily be good news based on recession fears, meaning a soft number could send stocks lower.
Before the headline employment numbers, US JOLTs Job Openings will be released on Wednesday, and the ADP non-farm employment change and weekly unemployment claims will be released on Thursday. We also get the Institute for Supply Management (ISM) data for August for manufacturing (Tuesday) and services (Thursday).
BoC: Third rate cut?
The BoC claims a portion of the limelight on Wednesday this week, scheduled to deliver an update at 1:45 pm GMT. As of writing, -29 basis points of easing is priced in for this announcement, meaning investors are anticipating another 25 basis point rate cut, bringing the Overnight Policy Rate to 4.25% and marking a third successive rate cut for the central bank. For the year, investors expect another two rate cuts following this, with a 25 basis point reduction at October and November’s meetings. And the economic landscape in Canada appears to justify rate cuts.
The year-on-year CPI inflation (Consumer Price Index) eased to its lowest levels since early 2021 at +2.5% in July (2024), down from +2.7% in June, remaining within the BoC’s inflation band of 1-3%. The BoC’s preferred measures of inflation, ‘CPI Median’ and ‘CPI Trim’, also pulled back to +2.4% and +2.7%, respectively, bringing the average of the two measures to +2.55%, down from +2.75%. At the July meeting, BoC Governor Tiff Macklem communicated that if further progress on disinflation is observed, it is ‘reasonable to expect further cuts in the policy interest rate’.
Regarding the labour market, unemployment remained at 6.4% for a second consecutive month in July (2024), unchanged from early 2022 peaks. Employment growth also fell by -2,800 in July, following a marginal fall of -1,400 in June. However, Statistics Canada noted: ‘Full-time positions saw an increase of 62K workers, while part-time jobs dropped by 64K’.
Statistics Canada released Q2 2024 Gross Domestic Product (GDP) on Friday and revealed economic activity grew more than expected, though it relied heavily on government spending (up +6.7%). On an annualised basis, GDP rose +2.1%, comfortably surpassing economists’ estimates and the BoC’s forecast of +1.5%. Albeit an impressive start to the first half of the year, under the hood shows it’s not all it’s cracked up to be. GDP per capita declined -0.1% (marking a fifth consecutive quarterly decline), and month-on-month GDP was flat in June. According to the flash estimate, July is also poised for another flat reading, lending to a weak Q3.
With a rate cut baked in, this is unlikely to generate much ‘surprise’; therefore, we can expect a limited market response. Traders will focus on the language from the rate statement and the press conference for clues of further easing, potentially weighing on the Canadian dollar (CAD) and underpinning the USD/CAD currency pair, which ended August lower by -2.3%.
G10 FX (five-day change):
This material on this website is intended for illustrative purposes and general information only. It does not constitute financial advice nor does it take into account your investment objectives, financial situation or particular needs. Commission, interest, platform fees, dividends, variation margin and other fees and charges may apply to financial products or services available from FP Markets. The information in this website has been prepared without taking into account your personal objectives, financial situation or needs. You should consider the information in light of your objectives, financial situation and needs before making any decision about whether to acquire or dispose of any financial product. Contracts for Difference (CFDs) are derivatives and can be risky; losses can exceed your initial payment and you must be able to meet all margin calls as soon as they are made. When trading CFDs you do not own or have any rights to the CFDs underlying assets.
FP Markets recommends that you seek independent advice from an appropriately qualified person before deciding to invest in or dispose of a derivative. A Product Disclosure Statement for each of the financial products is available from FP Markets can be obtained either from this website or on request from our offices and should be considered before entering into transactions with us. First Prudential Markets Pty Ltd (ABN 16 112 600 281, AFS Licence No. 286354).
Recommended Content
Editors’ Picks
![AUD/USD trades with mild gains above 0.6750 ahead of Chinese PMI data](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/AUDUSD/australian-currency-23690700_XtraSmall.jpg)
AUD/USD trades with mild gains above 0.6750 ahead of Chinese PMI data
The AUD/USD posts modest gains near 0.6770 after retreating from Friday’s high of 0.6815 during the early Asian session on Monday. However, the firmer US dollar after the US July's Personal Consumption Expenditures Index might drag the pair lower.
![EUR/USD bears add ahead of the US Nonfarm Payrolls report](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD bears add ahead of the US Nonfarm Payrolls report
The EUR/USD pair was unable to conquer the 1.1200 mark, and after flirting with the level at the beginning of the last week, it entered a downward corrective spiral that resulted in the pair ending it not far above the 1.1053 low.
![Gold drifts lower to near $2,500 on firmer US Dollar](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold drifts lower to near $2,500 on firmer US Dollar
Gold price softens near $2,500 on Monday during the early Asian trading hours, pressured by the stronger US Dollar. However, the downside of the yellow metal might be limited as a September interest rate cut by the US Federal Reserve remains in play.
![What to expect from Bitcoin in September, historically a red month for BTC](https://editorial.fxstreet.com/images/Markets/Currencies/Digital%20Currencies/Bitcoin/bitcoin_4_XtraSmall.jpg)
What to expect from Bitcoin in September, historically a red month for BTC
Bitcoin on-chain metrics support gains in Bitcoin, however, historically the largest cryptocurrency has yielded negative returns for traders in the month of September. The ongoing cycle is considered different from previous ones with Bitcoin Spot ETFs approved this year and rising institutional demand for the asset.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.