Last week was marked by the RBNZ's decision to maintain its official cash rate, which was interpreted as a hawkish stance by the market. Furthermore, they revised their rate projections, indicating that "if inflationary pressure were to be stronger than anticipated, the OCR would likely need to increase further."
In the U.S., Fed's Waller made some dovish comments hinting at potential rate cuts. It will be interesting to watch in the coming weeks if other Fed members share the same perspective, and particularly if Chair Powell does as well. I believe Powell will be reserved with expressing such views for now.
Looking ahead to this week, several important economic events are on the horizon.
Monday kicks off at a slow pace, with ECB President Lagarde scheduled to discuss monetary policy at the Academy of Moral and Political Sciences in Paris.
Tuesday brings notable releases, including the Tokyo Core CPI y/y for Japan; the RBA policy announcement and cash rate for Australia; the Final Services PMIs for the eurozone and the U.K.; and the ISM Services PMI for the U.S. Additionally, the FOMC Financial Stability Report is scheduled, and New Zealand will report Employment Change q/q and the unemployment rate.
Wednesday features Australia's GDP q/q, the ADP Non-Farm Employment Change for the U.S. and the BoC rate statement and Overnight rate for Canada. BoE Gov Bailey will also hold a press conference on the Financial Stability Report in London.
Thursday's highlight is the Unemployment Claims report for the U.S., while Friday will see other important U.S. data releases, including the average hourly earnings m/m, the Non-Farm Employment Change, the Unemployment Rate, the Preliminary UoM Consumer Sentiment and the Preliminary UoM Inflation Expectations.
The consensus for the Tokyo Core CPI y/y is a drop from 2.7% to 2.4%. This is still a bit above the BoJ's target, but not unusually high compared with other economically developed countries. However, analysts argue the spike in last month's inflation data was likely caused by volatility in fresh food prices and fewer subsidies for utilities in October. For this print, the downtrend should resume as fresh food prices moderated last month and signs point to processed foods and manufactured goods prices also having peaked.
At this week's meeting, the RBA is expected to maintain rates unchanged. Australia experienced lower-than-expected inflation figures for October, suggesting no immediate need for the RBA to act. There are currently no signs that inflation might surge again making another rate increase now, after the 25bps hike in November, very unlikely. However, analysts believe that another hike might be possible in February if the base effects prevent inflation from continuing to decline. The RBA will have sufficient data until then to assess whether the current rates are adequate.
The consensus for the U.S. ISM Services PMI is to rise from 51.8 to 52.5. The Fed's tightening did not slow down demand in the services sector which still remains in expansionary territory. Last month, the index dipped to 51.8, indicating a somewhat slower increase, but consumers continue to spend on services with personal services expenditures having climbed higher for 20 of the past 21 months, according to Wells Fargo.
The U.S. ADP Non-Farm Employment is expected to rise from 113K to 120K. However, this report is not supposed to create any volatility in the market, unless it deviates a lot from expectations. Everyone will be waiting for Friday's jobs data for more clarity on the labor market.
The BoC monetary policy announcement will be one of the most awaited events of this week. While the consensus is for the Bank to maintain its overnight rate unchanged, market participants will be looking for any hints regarding future decisions. The BoC might look to guide the market away from pricing in rate cuts for the beginning of next year. Although inflation data has moderated recently, it might be too early for rate decreases and the bank will likely want to wait for more data.
The most notable event on Thursday will be the unemployment claims in the U.S. which are expected to rise from 218K to 221K. Last month's jobs data -- 150K new jobs compared to 297K in September -- pointed to a labor market slowdown which had been widely anticipated since the Fed started its tightening cycle. The consensus for non-farm employment change in November is a rise from 150K to 185K but analysts from Well Fargo expect even higher growth (230K). However, this spike is likely fueled by the end of the UAW and Hollywood's actors strike as well as a late survey timing which will capture more seasonal holiday hires. Overall, they expect for softening labor demand to remain a theme moving forward.
The average hourly earnings are expected to increase by 0.3% from prior 0.2% and the unemployment rate to remain unchanged at 3.9%.
For the Prelim UoM Consumer sentiment expectations are for a rise from 61.3 to 62.0. This will be a slight improvement, but consumers remain concerned about current and future conditions and this was reflected in last month's print when the index dropped to 61.3.
What worries consumers most is the possibility of rising gas prices and inflation running hot again. Consumer year-ahead inflation expectations rose to 4.5% in November despite inflation currently receding suggesting that price increases coupled with higher interest rates will remain top of mind for some time.
USD/CAD expectations
On the H1 chart the pair closed the week near the 1.3480 level of support. From there a correction is expected until 1.3580 or even 1.3655 and if those resistance levels don't hold, the next target could be 1.3420.
On the upside, the next resistance levels are at 1.3730 and 1.3815.
From a fundamental standpoint, the latest U.S. labor market has been softening. This isn't favorable news for the USD, but it is likely to bolster the CAD in the short term. Compared to the U.S., recent jobs market data for Canada surpassed expectations, contributing to the CAD's strength, especially over the past week. It's important to note that this week will bring a substantial amount of new data for both the USD and the CAD.
Analysts at Citi point out that even if employment data for Canada printed above expectations, full-time job additions were not unusually high for the month and not enough to counter the substantial growth in population, which is why the unemployment rate continued to rise.
This article was written by Gina Constantin.
