Forex Major Currencies Outlook (Oct 5 – Oct 10)

RBA rate decision followed by FOMC minutes and Canadian employment data will highlight the week from an economic standpoint with markets facing an impact from Brexit and virus-related news.

USD 

Final Q2 GDP came in at -31.4% vs -31.7% as reported in the second reading. This is by far the worst quarter on record with private consumption plunging around 35% and business investment free-falling around 45%. Initial jobless claims continued to decline in the week ending September 26 coming in at 837k vs 850k as expected, down from 873k the previous week. Continuing claims slipped to 11767k from 12000k previously. Inflation, as measured by PCE, came in at 1.4% y/y vs 1.1% y/y the previous month with core PCE rising to 1.6% y/y from 1.4% y/y the previous month. Personal income dropped -2.7% due to the end of the weekly unemployment benefits which in turn dragged personal spending to 1% from 1.5% the previous month. 

NFP for September came in at 661k vs 875k as expected with previous month’s reading being revised up to 1489k. The unemployment and underemployment rates dropped to 7.9% and 12.8% respectively, however the participation rate also dropped to 61.4% from 61.7% the previous month thus taking away the shine from the reading. A drop in the unemployment rate could cause further divergence in the fiscal stimulus package as Republicans can argue that the amount should be lower due to the economy doing well. 

First presidential debate underwhelmed and started as an insult match. As it went on it turned from ugly into chaotic. President Trump refused to say that he will accept the election results increasing the fears of a contested election, an election of which the legality or validity of the result is challenged by the losing candidate and a constitutional crisis. President Trump announced on Twitter that he tested positive on COVID-19 which sent US equities down. He is 74 years old and overweight which puts him in a high-risk group. He is in quarantine which will side-line him for two weeks from the election campaign in the final month before the elections. 

This week we will have ISM Non-Manufacturing PMI, trade balance data as well as minutes from the latest FOMC meeting. 

Important news for USD: 

Monday:

  • ISM Non-Manufacturing PMI

Tuesday:

  • Trade Balance

Wednesday:

  • FOMC Minutes 

EUR 

Economic confidence in September came in at 91.1, up from 87.5 reported the previous month. Services and industrial sentiment also showed an improvement indicating the growing optimism surrounding the recovery in the euro area. Consumer confidence improved to -13.9 from -14.7 the previous month, but the reading is still rather weak. 

Preliminary September inflation data showed CPI falling further into deflation coming in at -0.3% y/y vs -0.2% y/y the previous month. Core CPI added salt to the wound by dropping to 0.2% y/y vs 0.4% y/y the previous month. Headline inflation fell to the its lowest level since 2015 while core inflation is at the record lows. Although the factors that lead to the drop are mostly transitory, -- German VAT reduction, a drop in energy prices and late mandatory sales period, -- there is a concern about the drop in services inflation caused by social distancing measures. If the deflation persists beyond transitory effects the ECB will be spurred into action to fight the deflationary pressures. 

This week we will have consumption data for the last month of Q3. 

Important news for EUR: 

Monday:

  • Retail Sales 

GBP 

Final Q2 GDP reading improved to -19.8% q/q vs -20.4% q/q as preliminary reported on upwardly revised business investment. However, this still remains the worst quarter reading on record with both private and government consumption being downwardly revised. Additionally, Q2 is long behind us and markets will react only to Q3 related news. 

This week we will have GDP data for the last month of Q3 as well as continuation of Brexit negotiations. 

Important news for GBP: 

Friday:

  • GDP 

AUD 

Industrial profits in China for August came in at 19.1% y/y for a fourth consecutive month of rising profits thanks to the massive government stimulus, pent-up demand and exports. Equipment manufacturing sector as well as mining sector showed the biggest rise in profits. Official manufacturing PMI in September came in at 51.5 beating the expectations of 51.3 and rising from 51 as reported the previous month. Non-Manufacturing PMI jumped to 55.9 vs 54.7 as expected which pushed composite PMI to 55.1. Caixin manufacturing PMI ticked down to 53.0 from 53.1 the previous month with Caixin noting "The sharp rise in overseas demand has complemented the domestic market" and adding their worries about the job market. 

This week we will have trade balance data and RBA interest rate decision. No changes to policy in October are expected but Reuters poll shows that 25 out of 36 economists see a cash rate cut to 0.1% at some time in Q4, most likely on November 3. We will have Caixin services and composite PMIs from China. 

Important news for AUD: 

Tuesday:

  • RBA Interest Rate Decision
  • Trade Balance

Friday:

  • Caixin Services PMI (China)
  • Caixin Composite PMI (China) 

NZD 

ANZ business survey for September showed business confidence improving to -28.5 from -41 the previous month. Activity outlook improved as well coming in at -5.5 vs -17.5 the previous month. ANZ noted that agriculture and construction are the most optimistic sectors while services and retail are the least optimistic. 

CAD 

GDP for the month of July came in at 3% m/m vs 2.9% m/m as expected for the third consecutive month of rising GDP. Astonishingly all 20 of the industrial sectors posted increases with manufacturing being at 5.9% and accommodation and food services at 20.1%. Projections for August GDP are at 1% m/m indicating rebound in Q3 GDP, however GDP is still 6% lower than in February. 

This week we will have employment data. 

Important news for CAD: 

Friday:

  • Employment Change
  • Unemployment Rate 

JPY 

Headline inflation for Tokyo area in September came in at 0.2% y/y vs 0.1% y/y as expected. CPI excluding fresh food came in at -0.2% y/y vs -0.3% y/y the previous month while CPI excluding food, energy came in flat vs -0.1% y/y the previous month. BOJ target is for 2% inflation so the small beatings are not nearly enough. Preliminary industrial production for August came in at 1.7% m/m vs 1.4% m/m as expected and -13.3% y/y vs -13.4% y/y as expected. Retail sales followed industrial production and came in with a beat of 4.6% m/m vs 2% m/m as expected thus returning to the growth path after a stumble in July. The unemployment rate ticked up to 3% as expected thus crossing the 3% mark for the first time since May 2017. 

This week we will have spending and earnings data. 

Important news for JPY: 

Friday:

  • Household Spending
  • Labor Cash Earnings 

CHF 

Total sight deposits for the week ending September 28 came in at CHF704.5bn vs CHF703.9bn the previous week. After a surprising drop in total sight deposits two weeks ago they continue with their upward trajectory. Both headline inflation and core inflation in September ticked up to -0.8% y/y and -0.3% y/y respectively. Retail sales in August came in at 2.5% y/y vs 3.6% y/y the previous month due to the drop in non-food (ex-fuel) category indicating slight slowdown in domestic demand. 

SNB quarterly intervention data report showed that they spent CHF90bn on currency interventions in H1 thus spending more in H1 of 2020 than in previous three years combined and amounting to slightly over 50% of Swiss GDP. US Treasury labels countries as currency manipulators if they meet three criteria and now Switzerland has met them all. Those are: Bilateral Trade, goods trade surplus higher than $20bn and Switzerland is at $47bn, Current Account Surplus, greater than 2% of GDP and Switzerland is at 8.6% of GDP and Persistent One-Sided Intervention in Foreign Markets, greater than 2% of GDP and for at least 6 out of 12 months and Switzerland is at over 50% of GDP with at least 8 months. With inflation deeply negative SNB is forced to continue intervening in the markets to fight off Swissy’s strength. 

This week we will have employment data. 

Important news for CHF: 

Thursday:

  • Unemployment Rate