The DXY Index faces resistance around 102.20 after its rebound from its 101.50 support level to 101.70 last week. This Friday’s US monthly jobs report will likely affirm the Fed’s desire to prevent a further cooling in the US labour market. Although consensus sees US nonfarm payrolls rising to 165k in August from 114k in July, they remain below the 200k level. The unemployment rate should stay above 4% despite expectations for a decline to 4.2% from 4.3%.
Speaking after the jobs data, New York Fed President John Williams and Fed Governor Christopher Waller should support the Fed’s telegraphed rate cut at the FOMC meeting on September 18. Williams was one of the two Fed Presidents who voted to reduce the discount lending rate in July, according to last week’s Fed discount minutes.
Waller’s speech will likely emphasize the likelihood of a soft landing for the US economy, supporting the case for a normal 25 bps cut in September, rather than the 50 bps cut previously pushed by the futures market. Waller may also offer insight into the Fed’s future rate trajectory. In the June Summary of Economic Projections, Fed officials called 25-50 bps of rate reductions in 2024, followed by a cumulative 200 bps cut through 2025-2026. These projections aligned with San Francisco Fed President Mary Daly’s assessment, which estimated an inflation-adjusted neutral interest rate as high as 1%, considering July’s PCE headline and core inflation at 2.5% YoY and 2.6%, respectively.
USD/CAD found support around 1.3450 ahead of the Bank of Canada’s third consecutive rate cut expected this week. On September 4, we anticipate the overnight lending rate to fall another 25 bps to 4.25%. CPI core trimmed inflation extended its decline inside the official 1-3% target to 2.7% YoY in July, its lowest level since April 2021.
On September 6, consensus expects the August unemployment rate to keep rising to 6.5%, its highest level since January 2022. The Trudeau government has moved to protect Canadian jobs by halving the share of low-wage temporary foreign workers that employers can hire to 10% of their overall workforce, effective September 26. However, Canada’s GDP growth surprised by accelerating a third quarter to an annualized 2.1% QoQ saar in 2Q24 vs. the 1.8% consensus; first quarter growth was also revised to 1.8% from 1.7%. Hence, we remain alert to any inclination by the BOC to pause after three consecutive rate cuts.
Quote of the day
”There is a limit to how much the US Treasury can borrow.”
Former Fed Chair Alan Greenspan
2 September in history
The US Congress established the US Treasury Department in 1789.
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