Week Ahead: Falling dollar awaits US employment data

July 28, 2017 09:36 PM
US economic fundamentals to drive dollar this week

The U.S. dollar is lower against the major pairs after the political uncertainty in Washington and mixed economic fundamentals took their toll on the greenback. The first week of August will be full of economic releases with major central banks on the agenda as well as the week wrapping up with the biggest economic indicator in the market, the United States Non-farm payrolls report.

The Reserve Bank of Australia (RBA) will release their August rate statement on Tuesday, Aug. 1 at 12:30 am EDT. The cash rate is not expected to change despite the AUD trading at two-year highs versus the USD and RBA policy makers arguing for a lower Aussie. The Bank of England will host another Super Thursday on Aug.3 at 7:00 am EDT with the release of the Quarterly Inflation Report, the Monetary Policy Summary, Minutes of the meeting. The rate is expected to remain unchanged despite the narrow vote in June. The rate setting committee is mixed on when to hike rates but the exit of a prominent hawk has pushed back the timing.

U.S. employment has been the biggest driver in the economic recovery narrative and could be called once again to spark USD strength. Jobs week kicks off on Wednesday, Aug. 2 with the publication of the ADP non-farm employment report at 8:15 am EDT. Unemployment claims will be released on Thursday, Aug. 3 at 8:30 am EDT and the week will close with the Non-Farm Payrolls report on Friday, Aug. 4 at 8:30 am EDT. Job gains are forecasted to be above 180,000 and wages could gain 0.3% pushing the unemployment rate down to 4.3%.

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The price of energy gained 1.242% on Friday. West Texas Intermediate is trading at $49.48 as the price of crude continues to rise. Bigger than expected drawdowns for the past three weeks and comments from US producers hinting at less output has driven prices higher. The OPEC and other major producers had so far limited output but with the US, Brazil and Canada out of the agreement the global supply glut was not being drained fast enough.

Citing a cutback in capital expenditure US operations will take a step back. At the same time Saudi Arabia has said that it will cut its production further and warned members of the production cut agreement that compliance will be more stringent to make sure stability returns to oil prices.

Crude oil has gained 8.41% in the last five days as the US dollar retreat has also made crude more expensive. Large financial institutions have cut forecasts for this year to a range around $60 per barrel. The two month high that WTI is currently sitting in is a good start, but not enough to convince investors the levels are sustainable. The biggest risk to oil prices remains the continued support from OPEC and other major producers. Infighting inside the OPEC could escalate and tear the organization apart as Saudi Arabia and Iran could take their ideological disputes a step further.

West Texas Intermediate graph


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