The forex markets are relatively steady as markets enter the last trading day of October and start a busy week. Dollar is set to close the month as the strongest major currency as supported by expectation of December Fed hike as well as surging treasury yields. That's followed by Aussie, as the second strongest one, as markets pared bet on RBA rate cuts. Meanwhile, Sterling will close as the weakest one on concerns over impact of Brexit to the economy in the medium to long term. Yen also followed as the second weakest on expectation of more BoJ easing down the road. Much volatility is anticipated for the week ahead.
Four central bank meetings will be featured this week, RBA, BOJ, FOMC and BoE. All are expected to keep policies unchanged. Fed fund futures are pricing in only 8.3% chance of a November hike but 74% chance of December hike. It's believed that Fed will firstly prefer to deliver the rate hike at a meeting with press conference for explanations. Secondly, while policymakers are comfortable for a hike, they are also patient enough to wait for the result of presidential elections in November before acting. Dollar will also look into key economic data including ISM indices and non-farm payroll employment to solidify the December hike expectations.
BoE is also widely expected to keep policies unchanged. But this week's meeting carries some significance as the quarterly inflation report will also be released. UK economic data since June have been very resilient. But the outlook is clouded by the fact that prime minister Theresa May will trigger Brexit negotiation by March next year. The updated projections would likely determine how much more easing would BoE deliver next year. UK will also release the new set of PMIs. Eurozone will also release unemployment, GDP as well as CPI flash.
Meanwhile, even though there are continuous speculations for BoJ easing, it's believed that the central bank will wait for Fed's move before acting. RBA is clearly on the way to stand pat for a while and such expectations provided much support to Aussie. Aussie traders will look into data including Australia building approvals, trade balance and retail sales. New Zealand dollar will look into employment data. And Asian markets will also keep a close eye on China PMIs.
Here are some highlights for the week ahead:
- Monday: Japan housing starts; UK mortgage approvals; Eurozone CPI flash, GDP; Canada IPPI and RMPI; US personal income and spending, Chicago PMI
- Tuesday: China PMIs; RBA rate decision; BoJ rate decision; Swiss retail sales; Swiss PMI; UK PMI manufacturing; US ISM manufacturing, construction spending
- Wednesday: New Zealand employment; Australia building approvals; Japan consumer confidence; Eurozone PMI manufacturing final, German unemployment; UK construction PMI; US ADP employment, FOMC rate decision
- Thursday: Australia trade balance; UK services PMI, BOE rate decision; Eurozone unemployment; US jobless claims, ISM services, factory orders
- Friday: Australia retail sales; Eurozone services PMI final, PPI; Canada employment, Ivey PMI; US non-farm payroll