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November 2, 2021

The Week Ahead: NFP, FOMC, BOE & Unemployment

Bart Kurek

Let's look at the news event's we've got lining up this week...

(AUD) RBA Rate Statement

The Reserve Bank of Australia is expected to keep its policies unchanged. Analysts aren't expecting changes from the central bank this time, but traders are likely going to be eager about Governor Lowe's presser to see if the RBA is still interested in defending its 0.10% yield target on its 3-year debt. The RBA did not step up to buy bonds when yields hit more than 0.50% last week. A lack in defence in the RBA's super cheap yields would mean the central bank is getting comfortable with higher interest rates and could possibly lead to raising its rates sooner than 2024.

(NZD) Unemployment Rate

The Quarterly Employment Change report is being released by "Statistics New Zealand" and is a measure of the change in the number of employed people in New Zealand. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity. The number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour-market conditions.

It is forecasted we see a slower pace of growth for the first quarter at 0.4% versus the previous 1.0% gain, and this should be enough to lower the unemployment rate from 4.0% to 3.9%. If we see an uprise in the actual figure then this will likely cause a bullish NZD.

(USD) FOMC Statement

The Fed was looking for "substantial further progress" on inflation and unemployment and they got it, traders are now expecting the Fed to scale down their monthly asset purchases from $120B starting from November. That being said, with asset purchases likely zeroing out by June 2022, markets will have their eyes on an interest rate hike schedule. Any hawkish statements from the Fed can extend the dollar's rally but any dovish statements or a slower-than-expected tapering tape could knock the USD against currencies with more hawkish central banks.

(GBP) BOE Monetary Policy Report

The BoE's members have been hinting at its urgency to respond to high inflation and markets are now pricing in at least a 15-basis point interest rate hike from the central bank. Traders shouldn't expect too much hawkishness though, because aside from the rate hike likely not being unanimous, it's likely we will see other MPC members push back and call for more economic data before committing to an interest rate hike schedule.

(USD) NFP

The Non-Farm Payroll (NFP) or also known as Non-Farm Employment Change data, released by the Bureau of Labor Statistics, is a key economic indicator for the US economy which represents the number of jobs added to US citizens, excluding farm, government, private household and non-profit organisation employees.

NFP data always causes a commotion in FX as it is an important indicator for the Federal Reserve Bank. When unemployment is high, policymakers tend to have an expansionary (stimulatory, with low-interest rates) monetary policy with the goal to increase economic output and increase employment.

The increase in demand for labour and the expiration of jobless benefits is expected to boost NFP by 397k following the disappointing 194k increase last month. This report will be printed after the Fed's taper timeline has been announced so its impact may be muted. However, traders will still look at data points like labour participation rate and average earnings for clues on hiring and inflation trends.

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