Week Ahead – NFP Report Could Keep the Dollar Rally Going

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It will be difficult for the U.S. dollar to escape the spotlight next week, as the November jobs report is likely to further dampen expectations of a faster Fed decline, extending the build-up. The last month of the year is expected to start busy with a lot of data on the way. In addition to the U.S. highlights, Canada will also report jobs in addition to its Q3 GDP print, Australia will also release growth figures, while the eurozone’s lightning inflation readings could give the euro much-needed calm.

Australian economy is likely to shrink in Q3

The weight of the recent closures will be fully shown in Australia’s GDP estimate for the fourth ending in October on Wednesday. The data will be preceded by quarterly trade inventories and net export contributions on Monday and Tuesday respectively. Strong demand for Australia’s exports is expected to dampen the overall success to the economy of the Covid shutdowns, which are forecast to have significantly damaged consumption and the construction sector.

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With investors estimating nearly four rates in 2022, better-than-expected growth numbers would support the view that the Reserve Bank of Australia will start raising rates ahead of its own guidance of 2023 at the earliest.

However, while any changes to the exchange rate outlook would probably not be very significant, it could be the perfect excuse the bulls need to step in and save the local dollar from the multi-week lows plummeted against their U.S. rival.

But while there is room for further surprise in the GDP figure, China’s manufacturing PMI on Tuesday and Thursday poses more downside risk for the aussie. China’s economy is cooling and any new evidence that the slowdown is accelerating could hurt risky appetite, causing more pain for the aussie.

Loonie hoping for a data-driven bounce

The Canadian dollar has not been spared from the ruthless attack of the green dollar although the outlook for the Canadian economy remains quite rosy. Growing expectations that the Federal Reserve will not only start raising rates sooner, but more likely replace the similarly aggressive investor prices for Bank of Canada’s strengthening in 2022.

The furious speculation about which central bank will raise rates the most will almost certainly not intensify next week, as employment data is due in Canada and the United States.

In addition, investors will have the opportunity on Friday to see how strongly Canada’s economy rebounded in the third quarter, shrinking in the June quarter when much of the country was locked up.

Solid GDP numbers on Tuesday and a further big jump in employment in October could see the BoC make another hawkish turn at its Dec. 8 policy meeting, possibly bolstering the loonie.

But the oil-bound currency will also attract attention at the next meeting of major oil producers.

Will there be a payback period for OPEC?

White House-led efforts to alleviate the global energy crisis ended in disaster after the coordinated move by the United States and several other major nations to release some of their strategic oil reserves did little to lower oil prices. Oil futures are on track to end the week lower, but only because of fears of the new and possibly very dangerous strain of Covid-19, which could weigh on demand if it spreads.

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The question now is, will OPEC and its allies punish the United States and its partners in crime for taking matters into their own hands? Probably not. Although, this reduces the chances of OPEC + countries accelerating the rate at which they undo the 2020 supply cuts in the coming months.

As for next week’s meeting (OPEC members meet on December 1 and the OPEC + pact on December 2), the likely result is that they will adhere to the plan of monthly increases of 400,000 barrels per day. However, there may be some clues as to which direction production could be headed in 2022, and this could be a key driver for the coming week.

Another NFP beat?

It has been a difficult year for the U.S. labor market despite the overall positive trajectory. But last month’s robust earnings of 531k in nonfarm payrolls reassured investors and the Fed that it’s only a matter of time before the labor market fully recovers from the pandemic. Analysts predict that November was another good month for job creation, with forecasts currently running at 563k. This would lower the unemployment rate down to 4.5%, while increasing annual average income growth to 5.0%.

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If Friday’s jobs are in line with or better than projected, that would bolster expectations that the Fed will accelerate a decline, perhaps as early as the December meeting. Also important will be the ISM-PMI reports. The manufacturing PMI is out on Wednesday, followed by the non-manufacturing compound on Friday.

In other U.S. data, pending home sales are due on Monday, the consumer confidence index and the Chicago PMI on Tuesday, and manufacturing orders on Friday.

A broadly optimistic data set would add fuel to the dollar’s ​​upward load, as at present, it is only the US where the economic outlook is as bullish as tariff expectations. This of course implies that other commanders have little chance of recovering any losses.

The main risk for the green dollar over the next few days is if Jerome Powell talks about speculating on a faster exit from QE when he testifies before the Senate Banking Committee on Tuesday. The Fed chief will answer questions from lawmakers along with Treasury Secretary Janet Yellen and may give some suggestions on whether he is inclined to such a policy change as many of his colleagues. The discovery of the new Covid mutation could prompt Powell to err on the side of caution.

Eurozone inflation will pick up again

Inflation in the Eurozone could rise to the highest since 1991 in November. The lightning estimates are released on Tuesday and are forecast to show that the headline number is collecting up to 4.4% per year. In the face of the recent deterioration of the virus image across the EU, such an increase would strengthen the case for a tax increase. However, with Germany likely to join Austria soon in a nationwide confinement, the European Central Bank is likely to wait and see if the temporary effects on inflation disappear on its own.

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Therefore, the best bet of the euro for a near-term rebound is if there is a withdrawal in the dollar.

In addition to the flash inflation numbers, the economic sentiment indicator for November on Monday, the final PMI readings on Thursday and retail sales on Friday could also attract some attention for the euro.

Elsewhere, the final PMI for November will also be around in the UK, data on retail sales and industrial production will be viewed in Japan on Monday and Tuesday respectively, while in New Zealand, the NBNZ’s business outlook survey on Tuesday and Q3. of business figures could stimulate some volatility in the kiwi.

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