Look Ahead: US CPI, BOC and ECB Minutes

The mixed-bag US jobs report on Friday caused the dollar to weaken further, allowing the likes of the EUR/USD and AUD/USD to push higher, while buck-denominated gold also got a boost. The USD/CAD meanwhile was hit with a double whammy as it not only fell on the back of the NFP report but the Canadian dollar also got a boost from the stronger Canadian employment figures. Despite the dollar’ negative reaction, the mixed-bag US jobs report is unlikely to be a game changer as far as interest rate expectations are concerned. After all, the headline figure of 213K means jobs growth expanded at a solid pace and while wages rose by less-than-expected 0.2% month-over-month, they grew nonetheless. The Federal Reserve will probably look through the unexpected increase in the unemployment rate to 4.0%, which rose partly because the participation rate increased. So, it was a “good” rise in unemployment rate.

US consumer inflation key focus point next week

Next week, the dollar will remain in focus as investors will be faced with more important macro data from the world’s largest economy. Chief among them will be the Consumer Price Index (CPI) measure of inflation on Thursday. If consumer inflation continues at its current trend or accelerates then one would expect the dollar to come back as the probability of two further rate increases in 2018 rises further. However, if CPI mirrors Friday’s wages data, and eases back, then this should give further relief for foreign currencies, including the euro, pound and in particular the yuan, which has slumped on fears about the economic impact of US tariffs on Chinese exports.

Could ECB minutes reveal any surprises?

While the FOMC’s meeting minutes, released in mid-week, were deemed to be overall hawkish, the dollar’s response was fairly muted as this was expected. The ECB’s last meeting minutes, due for publication on Thursday, are perhaps more interesting to read. We already know that the ECB has laid bare its intentions over QE and interest rates, with the former set to end in December and the latter expected to rise in the second half of 2019. But if the minutes reveal that more of the Governing Council members wanted the language over interest rates to have been more hawkish – say, for example, they wanted the wording to indicate an earlier rate increase – then this should boost the euro.

Bank of Canada rate decision could move the Loonie

But perhaps the most closely-followed major US dollar currency pair would be the USD/CAD, given that we will also have a rate decision to look forward to from the Bank of Canada next week on Wednesday. While the BOC is highly unlikely to raise interest rates at this meeting, any indications about future policy changes from the BOC Governor at the press conference or rate statement should nevertheless move the Loonie. With Canadian employment figures beating expectations on Friday, could the BOC sound less concerned over the economic impact of US tariffs on the nation’s metal exports, or the stalemate in the NFTA talks? While that’s a possibility, we wouldn’t be surprised if trade concerns again dominate the BOC’s thinking. What’s more, crude oil prices could weaken now that the OPEC has decided to relax production caps slightly and given the growing levels of crude production in North America. This could undermine the oil-linked CAD in the long-term. However, in the short-term traders who speculate on the Canadian dollar will probably ignore the volatility in oil prices and concentrate on the BOC’s message. The USD/CAD’s long term trend would only turn bearish again in the event the Loonie breaks 1.2950 support and hold below it.

Trade war, Brexit and FIFA World Cup…

…. are among other things to watch for developments next week, which could have repercussions for the stocks markets and the British pound. Most importantly, though, for us football fans is that we will find out whether England or Sweden will still be in the FIFA World Cup, and who they may face in the semi-final: Croatia or the hosts Russia. “It’s coming home, it’s coming home…” Either football is coming home…or the England team on a plane – but let’s hope not just yet!