Forex Major Currencies Outlook (Nov 8 – Nov 12)

USD 

November Fed meeting did not disappoint. Fed members acknowledged that economy is moving satisfactory along the recover road and proceeded with a taper of $15bn/month ($10bn/month in Treasuries and $5bn/month in Agency MBS). Another round of $15bn/month is announced for December. This means that the Fed is still buying $105bn of securities in November and $90bn in December. Fed left the doors open to further adjustments of taper amount according to the conditions in the economy, they can both increase or decrease the taper amount. Higher inflation or inflation expectations as well as tighter labour market conditions could lead to increases in taper amount. Wording on inflation has been changed to "Inflation is elevated, largely reflecting factors that are expected to be transitory" from "largely reflecting transitory factors" as described in the previous meetings. Chairman Powell stated at the press conference that bottlenecks should ease in 2022 adding that inflation is due to supply issues and a very strong demand. He stated that, according to committee, it is not time to raise interest rates because maximum employment has not been reached yet, while the markets price in above 60% chance of a rate hike in June of 2022. 

October nonfarm payrolls came in at 571k vs 423k as expected. Additionally, August reading was upwardly revised to 312k from 194k. The unemployment rate has dropped to 4.6% while participation rate stayed unchanged at 61.6%. Although participation rate is low compared to the pre-pandemic levels it is impressive that the unemployment rate fell and it was not changed. The underemployment rate also dropped to 8.3% indicating that people are more successful at finding jobs that match their skills. On the wages front monthly reading came in as expected at 0.4% m/m, but still down from 0.6% m/m in August. Yearly reading improved to 4.9% y/y. Leisure and hospitality sector was the biggest contributor to the headline reading followed by business services and manufacturing jobs. 

This week we will have inflation data which is expected to tick higher and continue the upward trend. 

Important news for USD: 

Wednesday:

• CPI

EUR 

The Eurozone final manufacturing IMP was slightly lower than the preliminary estimate coming in at 58.3, down from 58.5 initially and 58.6. It is a fourth consecutive decline and it was lowered on the back of Germany's manufacturing PMI being lowered to 57.8 from the 58.2 as preliminary reported and 58.4 in September. The French reading was tweaked up to 53.6 from 53.5. Rising supply delivery index, which is inverted so the higher reading means there are bigger supply issues, holds the reading high. Both services and composite PMIs ticked down to 54.6 from 54.7 and to 54.2 from 54.3 respectively. 

GBP 

BOE has decided to leave the rate unchanged at 0.10% thus surprising the bigger part of markets that included a 15bp raise to 0.25%. Vote was 7-2 with hawks Ramsden and Saunders voting for rate hike. Inflation is expected to dissipate over time. MPC members feel that existing stance of monetary policy is appropriate adding that it will be necessary to increase the rate in the coming months to return inflation toward the 2% rate. At the press conference Governor Bailey stated that it was a close call whether to raise rates adding that they never said they will act at a particular meeting. We expect to see them acting at the December meeting as they will have two post-furlough jobs reports to evaluate thus giving them clearer picture of the economy. 

This week we will have a preliminary Q3 GDP reading. 

Important news for GBP: 

Thursday:

• GDP 

AUD 

RBA has left its rate unchanged at 0.10%, however they have officially abandoned their targeted yield of 0.10% for 3-year government bond. We say officially because last week the yield climbed over 0.50% and RBA did not fight the market which signalled that abandonment of yield curve control will come at November meeting. They will continue to purchase government securities at a pace of AUD4bn/week until at least mid February 2022. New projections see GDP for 2021 at 3% while 2022 and 2023 are seen at 5.5% and 2.5% respectively. The unemployment rate is expected to decline, reaching 4.5% by the end of 2022 and 4% by the end of 2023. Inflation has picked up and only gradual, pick-up in underlying inflation is expected. The central forecast is for underlying inflation of around 2.25% over 2021 and 2022 and 2.5% over 2023. There was a minor tweak to forward guidance and Governor Lowe stated that rate hikes could be appropriate in late 2023. RBA Statement of Monetary Policy showed that for inflation to sustainably be between 2-3% target it is necessary for wages to be higher. The board added that it will not raise interest rates until these criteria are met and is willing to be patient. AUD has been pushed down on dovish RBA and AUDUSD had a first down week after five weeks up. Wage growth is now a priority for the bank. 

Official PMI data for October from China showed manufacturing continue to slump for the seventh month in a row, second in contraction and came in at 49.2 vs 49.6 in September. Energy shortages and supply constraints were main culprits for the decline. Non-manufacturing also declined, but held much better, coming in at 52.4 vs 53.2 the previous month. Government’s deleveraging reform as well as Covid 19 restrictions have led to declines. On the other hand, Caixin manufacturing PMI improved to 50.6 vs 50 as expected and previous month. New orders subindex continued to expand while new export orders subindex continued to decline, illustrating difference between domestic and international demand. Output subindex declined for the third consecutive month due to power outages and rising commodity prices. Caixin services also held better than officially reported, coming in at 53.8 vs 53.4 in September and much better than 50.7 as was expected which slightly lifted composite reading to 51.5 from 51.5 the previous month. 

This week we will have employment data from Australia as well as inflation data from China. 

Important news for AUD: 

Wednesday:

• CPI (China)

Thursday:

• Employment Change
• Unemployment Rate 

NZD 

Q3 employment report showed tremendous health of the economy. Employment change came in at 2% q/q, double that of the previous quarter (1% q/q). The stars were the unemployment rate and participation rate. The unemployment rate fell to 3.4%, a record low, from 4% in Q2 and it was achieved on rising participation rate which came in at 71.2%, up from 70.2% in the previous quarter. Wages slightly missed expectations (2.5% y/y vs 2.6% y/y as expected), but are higher than in Q2 and are moving in the right direction. RBNZ will happily continue with their rate hike cycle after such strong labor data. GDT auction posted a rise of 4.3% which will help improve New Zealand’s terms of trade as dairy is their largest export. 

CAD 

October employment report came short on the headline number with reading printing 31.2k vs 42k as expected. However, underlying data shows a much brighter picture. The unemployment rate slipped to 6.7%, lowest since March of 2020. Additionally, all of the jobs added were full-time jobs (36.4k) while part-time jobs showed a decline (-5.2k). To top the report, wages continued to grow and now show 2.1% y/y increase. With oil falling after the OPEC meeting, good employment reading was necessary to add some strength to CAD. 

JPY 

Prime Minister Fumio Kishida has secured a majority in the lower house for his incumbent Liberal Democratic Party (LDP). The market expect the LDP to stimulate the economy through fiscal stimulus and it gave Japanese stocks a nice boost. Final services PMI for October came in at 50.7, same as the composite reading. Services sector showed the first rise in business activity, return to expansion territory, in almost two years, since January of 2020. Employment levels are rising as well as business confidence which reached the highest level since 2013. 

CHF 

SNB total sight deposits for the week ending October 29 came in at CHF717.1bn vs CHF715.3b the previous week. This is the first bigger rise in sight deposits in a long time due to EURCHF falling below the 1.06 level for the first time since May of 2020, thus prompting SNB to buy EUR and USD. October inflation data showed headline number at 1.2% y/y, up from 0.9% y/y in September and core CPI at 0.6% y/y vs 0.5% y/y the previous month. Higher than Japan, but much lower than in the rest of the world. It will not pose a problem for the SNB.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}