Currency View by OFX

Last week’s news

• US employers added 1.4million jobs to the economy in August, sending the unemployment rate down to 8.4% as the labour market rebounded in the world’s largest economy. The biggest gains came from leisure and hospitality that recovered 174k jobs, retail which added 249k jobs and government positions which rose by 344k jobs (including many temporary jobs to assist with the upcoming elections). In the last few months, the US has regained around 11million of the 22.5million jobs lost in March and April earlier this year.
  I A summer surge in UK economic activity is unlikely to last, according to Bank of England rate setters who warned this week that recovery could be slower and the long-term damage to the economy could be greater than the central bank forecast in August. BoE members stated government support has held up spending over the past few months, with workers being paid by furlough schemes and ‘eat out to help out’ schemes increasing spending. This also coincided with the relaxing of lockdowns and a drop in infection rates- but this window may now be closing as government wage subsidies and tax deferrals end. BoE MPC member, Michael Saunders added that this makes it ‘quite likely that additional monetary easing will be appropriate’.
• Technology stocks that powered the US equities market through last summer went into sharp reverse last Thursday. Apple lost 8% of its value in 1 day, equating to around $150bn, while Amazon, Alphabet and Microsoft all fell more than 4%. The big 5- Apple, Amazon, Microsoft, Alphabet and Facebook, who between them have a combined stock value of $8trillion, were trading at an average 44 times their expected earnings (stocks were trading at 50x at the peak of the dotcom bubble). Analysts have been warning for some time that a correction is due, especially given the dangers of a possible second virus wave and the upcoming volatility related to the US elections in November.
• The Loonie was one of the best performers over the last week. It increased 1.4% versus the Aussie dollar, 0.82% versus the Euro, and 0.28% versus a strengthening US dollar. The Canadian dollar outperformed its group-of-10 peers following the nation’s August net change in employment report that showed a strong increase in full-time employment and wage gains.

Looking ahead

• The US dollar index soaring 0.56% in first 4 days of September might have only been a “dead cat bounce” if the dovish narrative continues in the US, especially from the Fed. Fed Chairman Jerome Powell said in an interview last Friday, “Today’s jobs report was a good one … to get us back to full employment, we’re going to have to get the disease under control”. Powell also provided more details about what he said in Jackson Hole a week ago, including, “…what we’ve learned is that unemployment can be even lower than we thought and not result in troubling levels of inflation. So, we saw that, for the last couple of years before the pandemic arrived. We had 3.5% unemployment, which was sort of the lowest period of sustained unemployment in 50 years. And we didn’t see inflation result.”
• The USD/CAD continues in a downtrend; it did lose some ground on Thursday following the stock market sell off and a stronger US dollar but if the risk-on mode is back to the financial markets, the USD/CAD’s next stop might be the mid-1.29s. Keep an eye on Governor Tiff Macklem from the Bank of Canada taking questions from reporters after delivering a virtual speech on the key issues behind the Bank of Canada’s September 9th rate decision.
• The USD ended up Friday almost flat, but Friday was quite an eventful day. Majors were struggling against the USD as risk off was setting in on the start of the session, continuing Thursday’s move. The NASDAQ was losing more than 3% initially but equities recovered following the payroll number and the USD gave way some ground. The JPY was almost unchanged while the GBP opened weaker on Asia as media reports lack of progress on the EU-UK negotiation.

Key market events this week

• EUR GDP Growth Rate QoQ Estimate- Tuesday
• AUD Westpac Consumer Confidence Index (Sept)- Wednesday
• CNH Inflation Rate YoY (Aug)- Tuesday
• Bank of Canada Interest Rate Decision- Wednesday
• European Central Bank Interest Rate Decision- Thursday
• GBP Quarterly GDP Average Figure QoQ/ YoY (Jul)- Friday
• USD Core Inflation Rate YoY (Aug)- Friday