This week's five highlights
U.S. November NFP Likely firmer due to returning strikers
USD/JPY Slumped on Ueda's Speech
Bank of Canada Tightening Bias Persists but is Reduced
USD/CAD Slipping on Weak Oil
RBA Continue to be data dependent
We expect a 200k increase in November's non-farm payroll, stronger than October's 150k though excluding the impact of returning strikers the data will be consistent with a modest slowing. We do however expect a correction lower in the unemployment rate to 3.8% from 3.9% and a 0.3% rise in average hourly earnings, stronger than October's 0.2%.
October's payroll saw a decline of 35k in manufacturing with 33k of that due to autos, where the monthly strike report reported that 25k were on strike. We expect a 25k increase in manufacturing in November, more than fully due to autos. October's strike report also showed 16k on strike in the motion picture industry, a strike that started in July and, like autos, should see a return to work in November's report. A final special factor in November could be a late survey and an early Thanksgiving inflating the retail sector.
Rising initial and continued claims trends however suggest some underlying slowing, and a 200k increase even with some supportive special factors would be slightly below October's 3-mopnth average of 204k and its 6-month average of 206k. We expect private payrolls to increase by 155k, with a 45k rise in government a slight slowing from three straight gains of 51k. Risk from October's revision is on the downside with the sum of state data showing only a 44k increase in employment in that month.
USD/JPY has begun in turn in late October after the Fed signals potential peak rates, which suggest yield differentials to be narrowing in the coming times when BoJ exit ultra-loose monetary policy. This week, we head from Ueda's mouth the word "exit" and sparked a JPY rally. The details within his speech is less persuading as BoJ still need wage inflation to be closer to 2% to achieve sustainable trend inflation that is the requirement for the BoJ to exit current monetary policy. Yet, it is enough to spark a rally in the JPY for the pair has been extremely streched for months.
On the chart, the consolidation above the Mon's low at 146.22 gave way to sharp break lower through the 200-day MA at 142.30 to reach 141.70 low. Subsequent bounce from the latter see prices unwinding the stretched intraday studies. However, the downside still not firm and break of the 142.30 and 141.70 support will open up deeper pullback to correct the gains from the Jan low. Lower will see room to 141.50/141.00 area. Meanwhile, resistance is at 144.00 then the 145.00 high of Jun, now expected to cap.
The latest Bank of Canada meeting provides no major surprises, with rates being left on hold at 5.0% but the BoC stating that it remains prepared to tighten policy further if needed. However a slightly more dovish tone to the statement suggests that the tightening bias has eased, and that further tightening can now be seen as unlikely.
The BoC states that economic growth stalled in the middle quarters of 2023, which gives roughly equal weight to a negative Q3 and an upwardly revised positive in Q2, appropriately with momentum stabilizing in late Q3 to suggest a broadly flat picture. However the BoC concludes that the economy is no longer in excess demand, slightly more dovish than its October assessment that supply and demand were approaching balance.
The BoC sees the slowdown in the economy as reducing inflationary pressures but maintains a cautious tone on inflation. It notes that wages are still rising by 4.5%. While noting slower October inflation it notes that shelter inflation has picked up, and sees October's core inflation measures as simply moving to the lower end of a 3.5%-4.0% range, clearly well above the 2% target.
While the BoC did no bring any surprises and suggest a more dovish tone, the fall in oil price has accerlerated ther fall in the Loonie. Despite persisting geopolitical tension, the OPEC+ decision in output cut cut seems to have driven the direction of the market as there is little signs of escalation from the Israel-Palestine conflict.
On the chart, there is still little change, as mixed/negative intraday studies extend cautious trade around congestion resistance at 1.3600. Both daily stochastics and the daily Tension Indicator are strengthening, highlighting a constructive tone and potential for a fresh test above here in the coming sessions. Subsequent focus will then turn to the 1.3640 Fibonacci retracement, where negative weekly charts could prompt fresh range trade. Following corrective gains, November losses are expected to resume. However, a close below 1.3495/00 is needed to turn price action negative and open up strong support at 1.3400.
RBA had kept the cash rate on hold at 4.35%. aligned with our forecast as latest inflation dynamics do not support more tightening. The key forward guidance statement of "Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks." stays and suggest RBA is leaving the door open to rate changes on data dependency. This dovish language seems to suggest the RBA is tilting towards not hiking anymore but will let data guide their action as they are not sure where inflation may go in a short run.
"The monthly CPI indicator for October suggested that inflation is continuing to moderate, driven by the goods sector; the inflation update did not, however, provide much more information on services inflation." It suggest the RBA is closely monitoring inflation dynamics, instead of focusing on quarterly CPI figure. The rhetoric is similar to what the RBA has been stating for the past month and they have acted accordingly to hold in the December meeting with monthly CPI moderates.
The decision remains in line with RBA's rhetoric in2023 so far after they switch be data dependent and stays patient in assessing the effect of cumulative hikes while keeping a close eye on inflation dynamics. They reinforced the hike in November with more stubborn inflation, strong economy, solid labor market and house price remain high. We maintained our forecast of terminal rate to be 4.35% with no more hikes in sight. RBA has removed previous wordings of "Inflation in Australia has passed its peak but is still too high and will remain so for some time yet."in the statement which is viewed as a dovish tilt by market participants. Yet, we do not think the RBA has a specific hawkish nor dovish take at the moment because they are simply being data dependent. But the room for RBA to tighten without significantly hindering economic growth remains minimal. The household balance sheet are restricted by mortgage cost and inflationary living pressure, while business are facing the tightest financial conditions in months, alongside peaking labor market even as the Australian economic growth being stronger than market consensus. The RBA did not change their inflation forecast and seems to be content with the trajectory of inflation by seeing 2-3 percent in 2025.