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FX Week Ahead: RBA, BoE meetings, and US Payrolls

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The week ahead will mark the start of a new trading month. With the summer period kicking in, trading is expected to remain subdued. Still, the week ahead is packed with a list of tier-one economic data that will no doubt keep the markets busy.

The Bank of England and the Reserve Bank of Australia will be holding their monetary policy meetings this week. No changes are expected from either of these meetings.

US economic data comes out in full force which includes the ISM manufacturing and non-manufacturing data, as well as Friday’s nonfarm payrolls report for July.

BoE and the RBA Meetings – Rates to remain steady

The week starts off with the Reserve Bank of Australia’s monetary policy meeting on Tuesday, August 1. Economists expect to see no changes to the RBA rate which remains steady at 1.50%.

The recent weaker than expected inflation data further adds weight to this view.

Australia Retail Sales MoM: 0.6% (May 2017)
Australia Retail Sales MoM: 0.6% (May 2017)

Later on, the retail sales numbers will be coming out. Economists are expecting to see the monthly retail sales in Australia rise just 0.2%, slowing from a 0.6% increase the month before.

On Thursday, August 3, the Bank of England will be holding its monthly policy review. Interest rates are expected to remain steady at 0.25%, although we could still expect to see three dissenting votes in favor of a rate hike.

With inflation easing back in June, rising just 2.6%, the BoE could be seen using this as an opportunity to keep rates on hold for a while longer.

However, there is a potential for the MPC to provide a hawkish forward guidance on the future of rate hikes. With the second quarter GDP, posting just a 0.3% increase in GDP, and most of the economic activity coming in through the services sector, the BoE is likely to be compelled to wait for more data before deciding on rate hikes.

Later in the week, the manufacturing, construction, and services PMI data will also be coming out which could bring additional volatility to the British pound.

US Nonfarm Payrolls and ISM

A busy week from the United States, the Institute of Supply Management (ISM) will be releasing the manufacturing and non-manufacturing data this week.

Following the surprise increase in the manufacturing PMI to 57.8, economists are forecasting that manufacturing activity index could slip to 56.2.

U.S. ISM Manufacturing PMI: 57.8 (June 2017)
U.S. ISM Manufacturing PMI: 57.8 (June 2017)

The PCE core index data is also coming up on Tuesday which is expected to show a 0.1% increase on a month over month basis brings the year over year increase in core PCE price index to 1.4%.

The ISM’s non-manufacturing PMI is also expected to ease back to 56.8, following the increase to 57.4 in June.

The focus will be, of course, on this Friday’s payrolls report. The US unemployment rate is expected to slip to 4.3% in July, from 4.4% in June. Expectations are high that wages might have increased 0.3% on the month, up from 0.2% increase previously.

New Zealand unemployment rate expected to fall

New Zealand will be releasing the quarterly unemployment report this week on Tuesday. Economists forecast the unemployment rate to fall to 4.8%, down from 4.9% previously. The data would suggest that employment continues to rise with firm economic activity.

Private sector wages are expected to rise 0.5%, slightly higher from the 0.4% increase seen in the previous quarter.

The hourly earnings are also forecast to jump 0.9%. Still, wage inflation is broadly expected to remain modest. In terms of the significance of the data for the RBNZ, while an increase in employment and wages is a welcome change, the central bank is unlikely to do anything much.

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