Welcome to the last trading quarter of the year!
Comdolls will be under the spotlight thanks to RBA and RBNZ’s new policy decisions and Canada’s labor market data.
Oh, and it’s NFP week, too! Think you’re ready for these market events?
Before that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
RBA’s policy decision (Oct 3, 11:30 pm GMT) – The Reserve Bank of Australia (RBA) has been raising its interest rates since May this year and, with Australia’s prices rising more than twice as fast compared to RBA’s 2% – 3% target range, traders expect the central bank to keep on its course this week.
Will RBA raise its rates by another 50 basis points? Or will members take the pedal off the metal and slow down with a 25bps rate hike?
Take note that RBA members have already debated the 25 vs. 50 bps rate hike in its last meeting and recognized that interest rates had been “increased quite quickly” and were “getting closer to normal settings.”
A 25 bps rate hike could lead to speculations of the end of an aggressive tightening cycle and probably support AUD, especially in a risk-friendly market environment.
RBNZ’s policy announcement (Oct 4, 9:00 pm GMT) – Like the RBA, the Reserve Bank of New Zealand (RBNZ) is also expected to raise its interest rates for another month in October.
RBNZ has been raising its rates since October 2021. This time, markets see RBNZ raising its rates by 50 basis points for the fifth month to 3.50%.
Keep close tabs on RBNZ’s comments about lower energy prices and improvements in supply chains which could spark speculations of peaks in tightening cycles.
OPEC+ meetings (Oct 5) – Crude oil prices are getting some support today thanks to speculations that OPEC and its friends will cut their monthly oil production to stabilize oil prices.
OPEC+ watchers floated the idea of a 1 million bpd cut last week so anything much lower could neutralize some of the bullish impacts of the output cut decision.
Canada’s labor market data (Oct 7, 8:30 am GMT) – After three straight months of net job losses, markets see Canada printing a net jobs gain of 22.5K in September while the unemployment rate remains at 5.4%.
Another net jobs loss could remind traders that the latest inflation numbers have eased and that the Bank of Canada (BOC) may have some room to take a chill pill with its interest rate hikes.
U.S. NFP reports (Oct 7, 8:30 am GMT) – After a higher-than-expected inflation gauge last Friday, traders will take a closer look at Uncle Sam’s labor market numbers for clues on how much the Fed can still tighten its monetary policies.
Markets expect job growth to slow down from 315K to 250K in September even as the unemployment rate steadies at 3.7%. Hourly earnings growth, which also affects inflation, is seen maintaining its 0.3% monthly uptick.
A couple of leading indicators should help traders adjust their estimates. The employment component of ISM’s manufacturing PMI (Oct 3, 10:00 am GMT) returned to expansion in August after three months of contraction. Ditto for employment activity in ISM’s services PMI (Oct 5, 10:00 am GMT), which grew after two months of contraction.
Meanwhile, the ADP report (Oct 5, 8:15 am GMT) might clock in at 135K after a 132K reading last month.
Stronger-than-expected U.S. jobs numbers would support a 75bps rate hike in November and likely keep the dollar strong against its major counterparts.
Forex Setup of the Week: AUD/JPY
The start of a brand spankin’ new trading quarter could bring the bulls to AUD’s yard this week and AUD/JPY may see some of the bullish action.AUD/JPY has been trading in an ascending channel since April this year. More importantly, it’s currently flirting with the channel support on the daily.
Will AUD/JPY extend its uptrend?
Stochastic is supporting bullish bets as it hangs out in the oversold territory. Meanwhile, the 100 and 200 SMAs continue to point upwards with the 100 SMA still comfortably above its longer-term counterpart.
I’ll be on the lookout for AUD buying ahead of RBA’s interest rate hike.
Rate hike speculations, accompanied by some start-of-month risk-taking could take AUD/JPY from its current levels to areas of interest like the 95.25 mid-channel levels or even the 98.00 September highs.