Aussie and Kiwi plunge Australian dollar and New Zealand dollar opened the Asian session with an approximately 0.50% and 0.20% gap down respectively. The drop came after data during the weekend showed that China’s manufacturing activity fell to its lowest level since May. The nation’s official Manufacturing PMI declined to 50.8 in October from 51.1 in September, below expectations of an unchanged reading. Even though the index remained above the 50 level, which indicates expansion, the decline in October’s figure suggests that further measures are needed to boost China’s economic growth.
The greenback already boosted by the relative strength of the US economy, remained elevated against its major peers during the Asian time. Based on the overall appetite for dollars and the strong fundamentals, I will maintain my longer-term USD bullish view.
As for today’s economic indicators, Monday is a (final) PMI day in Europe. It starts with the manufacturing PMI figures for October from several European countries, including the UK, and the final figure for the Eurozone as a whole. As usual, the final forecasts for the French, the German and Eurozone’s figures are the same as the initial estimates. The UK manufacturing PMI is estimated to slightly decline to 51.4 from 51.6.
From Canada, the RBC Manufacturing PMI for October is expected with no forecast available.
In the US, the final Markit manufacturing PMI and the ISM manufacturing index both for October are also to be released.
We have two ECB and two Fed speakers on Monday’s agenda: ECB Governing Council member Carlos Costa, ECB Governing Council member Ewald Nowotny, Chicago Fed President Charles Evans and Dallas Fed President Richard Fisher.
As for the rest of the week, many Central Banks hold their policy meetings. The spotlight will be on the ECB policy meeting on Thursday. The Bank has signaled that they will probably take time to assess the impact of stimulus measures announced in the recent months, especially after the first estimate of the region’s CPI showed a rise in the inflation rate.
On Tuesday, the Reserve Bank of Australia is expected to keep rates unchanged. Last time, the Bank seemed less concerned about the level of the currency than it was before and since then the currency rate gyrated around 0.8800 against the dollar. It remains to be seen if they retain their stance. We also wait to see if they say anything about the currency beyond its usual comment that it “remains above most estimates of its fundamental value”. In New Zealand, the Q3 unemployment rate is anticipated to decline a bit, while the participation rate is expected to increase and average hourly earnings are forecast to accelerate. The positive labor market data could prove NZD supportive.
On Wednesday, the final manufacturing PMIs for the countries we got the preliminary figures for on Monday are coming out. In the US, we have the ADP employment report two days ahead of the NFP release. The ADP report is expected to show that the number of jobs gained in October increased from September.
On Thursday, the Bank of Japan releases its Oct. 6-7 meeting minutes. However, these are not the minutes from the most recent meeting and following the announcement of further stimulus on Friday, they will probably have little importance. Besides ECB, Bank of England meets to decide on its policy rate. The BoE is unlikely to change policy and therefore the impact on the market as usual should be minimal. The minutes of the meeting however should make interesting reading when they are released on 12th of November.
Finally on Friday, the major event will be the US non-farm payrolls for October. The market consensus is for a rise of 235k, down from the unexpected increase of 248k in September. At the same time the US unemployment rate for October is forecast to remain unchanged at 5.9%, while average hourly earnings for the same month are expected to accelerate on a yoy basis. The strong employment data are consistent with the FOMC report saying that the underutilization in the labor market is "gradually diminishing”. Canada’s unemployment rate for October is also coming out and net change in employment is expected to switch back to negative again.