FX Week Ahead Overview:

• The first week of November is all about central banks: the Reserve Bank of Australia will release its rate decision on Tuesday; the Federal Reserve on Wednesday; and the Bank of England on Thursday.
• While still important, the October US jobs report may see a muted impact in the wake of the Fed meeting when it is released on Friday.
• Labor market data from New Zealand, Germany, and Canada are also due over the course of the week.

For the full week ahead, please visit the DailyFX Economic Calendar.

11/01 TUESDAY | 03:30 GMT | AUD Reserve Bank of Australia Rate Decision

Recent comments by key Reserve Bank of Australia officials suggests that the central bank still has some ways to go in order to bring its main rate into neutral territory, the level as which monetary policy is neither expansionary nor contractionary. RBA Assistant Governor for Economics Luci Ellis remarks this week effectively pegged the neutral rate between 2.5% and 3.5%; currently, the RBA’s main rate is 2.6%. More tightening may be ahead, but it may come in more measured increments over the next few months. That could start as soon as the November RBA meeting, where rates markets are currently pricing in a 103% chance of a 25-bps rate hike (3% chance of a 50-bps rate hike).

11/02 WEDNESDAY | 18:00 GMT | USD Federal Reserve Rate Decision

Over the past three months, there has been a tight relationship among the DXY Index, the shape of the US Treasury yield curve, and Fed rate hike odds. Despite easing back at the end of last week, Eurodollar spreads and Fed funds futures are still pricing a full 75-bps rate hike for the next Fed meeting in November. However, questions remain about whether or not a 50-bps or a 75-bps rate hike will be levied in December. If the destination matters more than the journey, the Fed may signal that it intends on begin slowing the pace of rate hikes moving forward but will ultimately end at a higher terminal rate than previously discussed (September FOMC outlined a 4.6% terminal rate at the end of 2023).

11/03 THURSDAY | 12:00 GMT | GBP Bank of England Rate Decision

It’s been an interesting month for the BOE, needless to say. The UK mini-budget precipitated an emergency intervention by the BOE in UK Gilt markets, which ultimately culminated with the resignation of former UK Prime Minister Liz Truss. Now that Rishi Sunak has taken over as UK Prime Minister, all appears well: UK Gilt yields are lower than where they were before the mini-budget, and the British Pound is stronger versus the Euro and the US Dollar. The lack of dysfunction may now give the BOE the runway it needs to continue with its plans to fight inflation with aggressive rate hikes in the coming months.UK overnight index swaps (OIS) are discounting aggressive action moving forward, with a 51% chance of a 75-bps rate hike in November (a 100% chance of a 25-bps hike and a 100% chance of a 50-bps rate hike).

11/04 FRIDAY | 12:30 GMT | CAD Employment Change & Unemployment Rate (OCT)

According to a Bloomberg News survey, the Canadian economy added +5K jobs last month after gaining +21.1K jobs in September. The job gains may not be sufficient to keep up with workers entering the labor market, however, as the unemployment rate is anticipated to rise to 5.3% from 5.2%. The mix of data is unlikely to move the needle for the Bank of Canada in either direction, which has recently begun to downshift the pace of its rate hikes (levying a 50-bps hike at the end of October against expectations of 75-bps). A weak Canada jobs report could weigh on the Canadian Dollar, given the BOC’s stance.

11/04 FRIDAY | 12:30 GMT | USD Nonfarm Payrolls & Unemployment Rate (OCT)

A US recession may be in the past and may still be forthcoming, but the US labor market has remained resilient thus far. According to a Bloomberg News survey, the US economy added +200K jobs from +263K jobs in September, with the US unemployment rate (U3) rising to 3.6% from 3.5%. The US participation rate is expected to hold at 62.3%, while US average hourly earnings are anticipated to come in at +4.7% y/y from +5% y/y.

According to the Atlanta Fed Jobs Growth Calculator, the US economy needs +104K jobs growth per month over the next 12-months in order to keep the unemployment rate (U3) below 5% with a 63.4% labor force participation rate.

If ‘good news is bad news’ for risk assets as the Federal Reserve recalibrates its policy stance, then ‘good news is good news and bad news is bad news’ for the US Dollar: a strong US labor market report could help revitalize Fed rate hike odds; a weak US labor market report weigh on terminal rate odds in 2023, which would hurt the US Dollar.

— Written by Christopher Vecchio, CFA, Senior Strategist