The week will start with a holiday in the U.S. and Canada, but on Monday we'll have the OPEC-JMMC meetings which, according to the WSJ, are likely to come with an announcement that OPEC+ is freezing output.
On Tuesday we have the RBA rate statement and the cash rate in Australia and the ISM Services PMI in the U.S. For Australia we'll also have the GDP q/q on Wednesday, along with the Monetary Policy Report Hearings in the U.K. and the BOC rate statement and overnight rate in Canada. Fed members Mester and Brainard are also scheduled to speak.
The ECB press conference and main refinancing rate are expected Thursday for the Eurozone. Jerome Powell is scheduled to speak a bit later that same day, but he will participate in a moderated discussion at the Cato Institute's Annual Monetary Conference. Nothing different from his last speech is expected, but it's worth keeping an eye on it nevertheless, as the ECB meeting could be quite disappointing.
The Canadian employment change and unemployment rate are expected on Friday, rounding up the week.
Last week, the Swiss franc was negatively impacted by the KOF indicator as it printed below expectation with its lowest reading since July 2020. This highlighted that the Swiss economy is affected to a larger degree by the bad economic outlook in Europe. The CHF fell immediately after the release due to the market's reaction but recovered the following day.
The CPI came higher than expected at 3.5%, marking the steepest rise in consumer prices since August 1993. Following Governor Jordan's recent comments at Jackson Hole Symposium, this will definitely trigger a hawkish reaction at the September SNB meeting.
At this week's meeting, the RBA is expected to hike the rate by 50 bps and to continue its hawkish tone. Governor Lowe said at the last meeting that hikes are not on a pre-set path so it's possible that after this meeting we'll see only 25 bps rate hikes until the end of the year. There are many factors that can influence the Bank's decision and traders need to watch developments closely.
The U.S. ISM Services report Tuesday will come on the heels of a better-than-expected manufacturing ISM last week. July's services report printed higher than all forecasts at 56.7, but there was still pessimism among managers in the sector regarding economic weakness and fears of recession. According to Wells Fargo, the August report expected this week may benefit from falling gas prices, which enables consumers to spend more on services.
The BOC is likely to hike the rate by 75 bps this week. It's hard to believe after the last CPI data that inflation has cooled down, so it's hard to believe the Bank will pause the hiking cycle in the near future.
As far as the ECB goes, a 75-bps hike was already priced in by the market based on analysts’ consensus, but now it seems that a 50 bps rate hike is more plausible. Isabel Schnabel delivered many hawkish comments lately, but all eyes are on Christine Lagarde who hasn't said much on the matter and the potential path for ECB's monetary policy.
The eurozone economy is prone to a mild recession due to the energy crisis, especially after Friday's news that the Nord Stream 1 pipeline will remain shut down for an indefinite period of time. Europe has a high inflation rate, but it's not as pronounced in core elements and is not showing up in wages, according to Morgan Stanley analyst Andrew Sheets. This means the ECB might not react too aggressively.
USD/CAD expectations
On the H1 chart the pair didn't break above the 1.3185 level of resistance which could suggest a move to the downside. A correction is expected until the 1.3065 level of support. If broken, the next support is at 1.2980.
A hawkish message from the BOC will likely support the CAD. From a technical point of view, USD/CAD looks more prone to the downside in the short term, especially giving the weak closing for the USD last week which could extend into this week.
On the upside the next level of resistance is at 1.3215.
This article was written by Gina Constantin.
