The upcoming week is light on economic events for the FX market, with key highlights including the ISM services PMI from the U.S., the BoE monetary policy announcement, and Canadian labour data. Monday remains quiet, while Tuesday sees the release of the ISM Services PMI in the U.S.
Wednesday focuses on New Zealand’s quarterly employment change and unemployment rate. Thursday features the BoE’s policy announcement, with the U.S. releasing its weekly unemployment claims, followed by Canadian employment changes and unemployment rate on Friday. Throughout the week, comments from various FOMC members are anticipated.
Us Economic Outlook
In the U.S., the ISM services PMI is expected to be 51.5 compared to 50.8. Rising costs are a concern, as the services sector struggles to gain momentum, with prices paid reaching high levels. A cautious outlook prevails due to subdued demand and labour market signals. In New Zealand, employment change is anticipated at -0.1%, with unemployment projected to rise to 5.3%.
If labour data is weak, it could prompt a policy rate cut at the upcoming meeting. The BoE is likely to enact a 25 bps rate cut, despite inflationary pressures. In Canada, employment changes are expected to be 15.3K, with Unemployment at 7.0%, amidst uneven labour market dynamics. Sectoral differences continue, with manufacturing weak but services driving job growth.
This week, we are watching the U.S. ISM services PMI on Tuesday for signs of economic health. Recent flash PMI data for July already suggested a reading around 52.2, which, while an improvement, points to slowing momentum from earlier in the year. This environment of high input costs and sluggish demand suggests using options to bet on limited upside in U.S. equity indices for the coming weeks.
For the New Zealand dollar, all eyes are on the expected interest rate cut from the Reserve Bank of New Zealand. Wednesday’s employment data will be key; if the unemployment rate rises to the expected 5.3%, it would be the highest level in over three years and likely seal the deal for a cut. This makes buying put options on the kiwi, or shorting NZD futures, a straightforward strategy ahead of the decision.
Bank Of England Rate Decision
The Bank of England is expected to cut rates by 25 basis points this Thursday, a move markets have largely priced in. With UK inflation for June holding firm at 3.1%, the real market-moving event will be the Bank’s future guidance, not the cut itself. This sets up a potential play on volatility, using straddles or strangles on the British pound or FTSE 100 index futures around the announcement.
In Canada, Friday’s labor data is expected to show a significant slowdown, with only 15.3K new jobs. An increase in the unemployment rate to the forecasted 7.0% would mark a new multi-year high, confirming a cooling economy. Given the weakness in goods-producing sectors, traders might consider selling call options on the Canadian dollar, anticipating that any strength will be capped.
