Welcome to another non-farm payrolls (NFP) week!
Before we see Friday’s release, the BOC’s policy decision and Eurozone’s inflation numbers might also move the major currencies around.
But before that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the potential market movers this week:
Major Economic Events:
Eurozone inflation – European Central Bank (ECB) members hinting of July and/or September rate hikes got traders looking more closely at inflation trends in the Eurozone.
Germany’s preliminary CPI (May 30) could slow down from 0.8% to 0.5% in May while France’s inflation (May 31, 6:45 pm GMT) could pick up from 0.4% to 0.5%. Eurozone’s CPI flash estimates (May 31, 0:00 am GMT) could also reflect faster price increases, with the headline CPI seen at 7.7% (from 7.5%).
BOC’s policy decision (Jun 1, 2:00 pm GMT) – The Bank of Canada (BOC) raised its interest rates by 50 basis points – the biggest increase in 22 years – in April following a 25-basis point hike in March.
The central bank also announced that it will go cold Turkey on Canadian government bond reinvestment activities and initiate a “quantitative tightening” (QT) program.
Markets see another 50-bp increase this week, with interest rates climbing to 1.5% – the highest since January 2020.
BOC was mainly focused on inflation in its last policy decisions but, with interest rates sharply higher in a span of months, the central bank could turn its attention to other economic risks.
US labor market reports (Jun 3, 12:30 pm GMT) – Uncle Sam added a net of 428K jobs in April, the same pace as in March and higher than the expected 391K increase. Traders focused more on the 0.3% uptick in average, which is lower than March’s 0.5% earnings increase and the 0.4% growth estimates.
USD ended up falling for a while before risk aversion pushed the safe-haven back up to near its intraday highs by the end of the day.
This week, markets mostly expect a slowdown. The non-farm payrolls (NFP) could show a 310K increase while hourly earnings are maintaining their monthly (0.3%) and annual (5.5%) growth rates. The unemployment rate could dip from 3.6% to 3.5%, however.
Better-than-expected numbers may support speculations that the Fed won’t be as hawkish for long and extend the risk-friendly market environment from last week.
Forex Setup of the Week: AUD/USD
AUD/USD has recovered nicely from dropping to its .6830 lows just three weeks ago.
The comdoll is now trading closer to .7200, which is riiight below the 100 and 200 SMAs on the daily time frame.
What’s more, the psychological level is also close to the top of a descending channel that bulls and bears have been minding since September 2021.
AUD/USD could benefit from a continuation of last week’s risk-friendly market theme and reach the potential resistance levels that we’re eyeing.
But keep close tabs on news that might sour AUD/USD’s uptrend.
China’s official PMIs, for example, are scheduled tomorrow and are expected to print higher numbers than in April. If the numbers miss market estimates (and they could thanks to ongoing lockdowns), then AUD could take hits.
And then there’s USD demand, which could gain traction as soon as traders turn their eyes on worrying about high inflation and global growth.