FX Week Ahead – Top 5 Events: RBA Rate Decision; RBNZ Rate Decision; US ISM Services; Canada Jobs Report; US NFP

FX Week Ahead Overview:

• The first week of October puts attention on central banks, with the Reserve Bank of Australia and Reserve Bank of New Zealand rate decisions on tap.
• With no Federal Reserve meeting this month, Fed policymakers are out on the press circuit in full force over the coming days and weeks.
• The end of the week is marked by dual September labor market reports, one from Canada and one from the United States.

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

10/04 TUESDAY | 03:30 GMT | AUD RESERVE BANK OF AUSTRALIA RATE DECISION

With Australian inflation rates continuing to climb, the RBA met expectations by raising rates for the fifth consecutive time at the September meeting this week, in what was the fourth consecutive 50-bps rate hike. But having dropped language suggesting that interest rate policy was normalizing, it stands to reason that the RBA has taken a less hawkish tone than anticipated. If the RBA raises rates over the coming months, it appears that the October meeting might be the final 50-bps rate hike, and that the cadence will be at 25-bps moving forward.

10/05 WEDNESDAY | 01:00 GMT | NZD RESERVE BANK OF NEW ZEALAND RATE DECISION

The RBNZ meets for the first time since August, and to an extent, rates markets haven’t changed their expectations in recent weeks. In August, the RBNZ revised its expectation for the main rate in 2023 from 3.70% to 4.10% by 2Q’23. In recent weeks, RBNZ Deputy Governor Christian Hawkesby said that policymakers want to bring the main rate “comfortably above neutral” in order to help reduce inflation pressures (which stood at +7.3% y/y as of 2Q’22). Rates markets have been pricing in a 50-bps rate hike at each of the October and November meeting. Beyond there, however, the cadence of rate hikes may slow to 25-bps in 2023.

10/05 WEDNESDAY | 14:00 GMT | USD ISM NON-MANUFACTURING PMI (SEP)

Data for 3Q’22 thus far has led the Atlanta Fed GDPNow growth tracker to sit at +2.3% annualized. The upcoming US ISM non-manufacturing PMI for September is expected to come in at 56 from 56.9, suggesting that growth is decelerating but remains in modestly positive territory. The forecast is strong enough to keep intact the ‘good news is good news’ paradigm for the US Dollar, but ‘good news is bad news’ for US stocks and gold prices.

10/07 FRIDAY | 12:30 GMT | CAD EMPLOYMENT CHANGE & UNEMPLOYMENT RATE (SEP)

According to a Bloomberg News survey, the Canadian economy added +20K jobs in September after losing -39.7K jobs in August. The BOC appears to be achieving its desired outcome, as the unemployment rate has risen sharply from 4.9% in June to 5.4% last month, where it is expected to remain in September. With the October BOC rate decision still several weeks away, the data should have increased importance for the Canadian Dollar. Another weak Canada jobs report could prove troublesome for the Canadian Dollar, given the BOC’s stance of softer forward guidance relative to other major central banks.

10/07 FRIDAY | 12:30 GMT | USD NONFARM PAYROLLS & UNEMPLOYMENT RATE (SEP)

Despite mounting US recession concerns, the US labor market has remained resilient. According to a Bloomberg News survey, the US economy added +250K jobs in September from +315K jobs in August, with the US unemployment rate (U3) holding at 3.7%. The US participation rate is expected to edge higher to 62.5% from 62.4%, while US average hourly earnings are anticipated to come in at +5.1% y/y from +5.2% y/y.

It remains the case that ‘good news is bad news’ for risk assets as the Fed Chair Jerome Powell and other Fed policymakers (many of whom will be speaking this week) has repeatedly stated that the FOMC wouldn’t mind to see a softer labor market if that’s the price to pay in order to bring inflation down; a strong US labor market report could boost Fed rate hike odds, which are discounting a 73% chance of a 75-bps rate hike in November.

— Written by Christopher Vecchio, CFA, Senior Strategist