The markets are focusing on three points this morning.
1) The potential for OPEC+ supply cuts.
2) FX intervention from Japan and possibly China too.
3) The prospects for Friday's US jobs report.
Media reports suggest OPEC+ (meeting Wednesday) will push for a 1mn barrel per day cut in production. The prospects of an OPEC+ supply cut may offer some brief support to the Canadian dollar but given a challenging risk environment, we doubt that the CAD can hold any near terms gains.
Friday saw Japan announce that the central bank had bought close to US$20bn of yen in its intervention late last month. This will be the start of a campaign from Japanese authorities who can only hope to slow, not reverse the USD/JPY uptrend. China may well have intervened above 7.20 in USD/CNY last week. Unlike the Japanese, Chinese authorities do not report FX intervention activity. It is a holiday this week in China, so the 7.20 level may not be challenged again until next week.
Finally, the highlight of this week's US data calendar will be Friday's release of the September jobs report. Markets are looking for a solid 200k increase in jobs and the unemployment rate staying low at 3.7% - both pointing to another 75bp hike from the Federal Reserve on 2 November. Observe the USD/CAD trends.
The US dollar closed at its highest level against the Canadian dollar since mid-2020 before the weekend near 1.3830. It moved dramatically between 1.3600 and 1.3840 last week. It is trading sluggishly today between 1.3730 and 1.3815. The intraday momentum indicators warn of the risk of test on the highs in the North American session. Canada sees its September manufacturing PMI (from 48.7 in August) but is not typically a market-movers. The highlight of the week is the trade figures on Wednesday and the employment data on Friday.
Today will see the final September PMIs for the eurozone, with the manufacturing component expected to remain near 48.5, in contraction territory. News that OPEC+ wants to increase oil prices will not be welcomed across the region. Weekend reports suggest that what little remains of Russian gas exports to Europe may dwindle while focus in the eurozone is also shifting to the size of fiscal support packages. EUR/USD is holding its gains from last week. One could argue that intervention (both FX from Asian authorities and in the bond market from UK authorities) is delivering this pause in the dollar's bull trend. Look for the EUR/USD to test 0.95 in October.
This morning the GBP/USD is enjoying another leg higher on reports that the Liz Truss government will formally reverse its planned abolishment of the 45% income tax bracket. This feels like a rather symbolic move being less about the amount of money it will save (low billions) and more about the signal it had delivered of ideological (unfunded) tax cuts. The move looks driven by a backlash from her own party and perhaps the threat of a sovereign rating downgrade, where the S&P rating agency on Friday shifted the UK outlook to negative from stable in an unscheduled move. This downgrade is unlikely to affect the pound we see a new trading range of trading range of 1.1000-1.1350.
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