Forex Market Outlook For The Week July 06 – 10, 2020

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Over the last week, the U.S. dollar shed nearly 0.2 percent as the investors remained concerned about the outcome of the second wave of Covid-19 in the United States despite encouraging ISM Manufacturing PMI and employment reports.

The markets around the globe are being pulled in opposite directions because of conflicting narratives. Rebounding economic data, encouraging news around a vaccine against coronavirus, and optimism about the announcement of more stimulus packages to get the economies back on their feet quickly are driving the bull sentiment. On the other hand, the bears are of the opinion that it will take several years to achieve full recovery. They also say that some sectors might even be scarred permanently. Further, they fear that the resurgence in infections in the US might upset not only the reopening process but also keep the consumption down.

The upcoming week is relatively quiet as far as crucial economic events are concerned. Highlights include interest rate announcement by the Reserve Bank of Australia, services PMI from the US, and jobs data from Canada. As such, the theme that is likely to drive the currency market will be the impact of the virus on the global economy, particularly the US.

#1: United States ISM Non-Manufacturing PMI (07/06/2020 Monday 14:00 GMT)

forex market outlookIn the United States, the Non-Manufacturing PMI reported by the Institute for Supply Management rose to the 45.4 level in May from the 41.8 level in the prior month which represented the first contraction since December 2009 in the services-providing sector. It was also the sharpest contraction since March 2009 and was attributed to the coronavirus lockdown restrictions. Analysts had expected the ISM Non-Manufacturing PMI to come in at the 44.0 level even though it still pointed towards a sharp contraction in the sector.

Production, new orders, employment, and inventories declined but less than in the month of April. According to the ISM Chair Anthony Nieves, respondents remained concerned as regards the ongoing coronavirus pandemic and its impact. Moreover, he noted that companies of most of the respondents are hopeful of and/or are planning for the resumption of their businesses.

Forecast for June 2020: 50.0

#2: Australia Cash Rate (07/07/2020 Tuesday 04:30 GMT)

In the meeting held in June, the Reserve Bank of Australia decided to leave the cash rate unchanged at the record low level of 0.25 percent as analysts widely expected. The central bank said that the economy is continuing to go through a difficult period and is experiencing the biggest economic downturn ever since the 1930s. Policymakers, however, noted that the depth of the economic downturn might probably be less than previously expected, following a decline in the rate of increase of new cases. As such, a few restrictions have also been eased earlier than what was previously believed to be possible. Additionally, the Monetary Policy Committee noted that they are keeping options open and are prepared to boost government purchases further and take whatever steps needed to ensure that bond markets continue to remain functional. Policymakers also noted that the economy is benefitted by the unprecedented easing of monetary and fiscal policies and it will likely be continued for some more time. The Reserve Bank of Australia’s Board noted that the cash rate target will not be increased until progress is made towards full employment and inflation is brought within the 2 percent to 3 percent target.

Forecast for July 2020: 0.25 percent

#3: Australia RBA Rate Statement (07/07/2020 Tuesday 04:30 GMT)

The Reserve Bank of Australia releases the Rate Statement on the first Tuesday of every month, excluding January. The Central Bank uses it as a tool for communicating with investors as regards the monetary policy. It provides the outcome of the members’ decision on setting interest rates. In addition, it offers commentary on the economic conditions that impacted their decision. More importantly, the Rate Statement discusses the nations’ economic outlook and provides clues on future decisions.

#4: Canada Employment Change (07/10/2020 Friday 12:30 GMT)

In May, Canada added 290,000 jobs against analysts’ expectations for a 500,000 decline. The number of Canadians who worked for less than 50 percent of their usual working hours declined 292,000 or 8.6 percent. Overall, these changes in the labor market indicated a recovery of 10.6 percent of the COVID-19-related job losses and the absences recorded in the prior two months. Seventy-five percent of the gain in employment from April to May was in full-time work. Compared to February, full-time employment declined 11.1 percent in May. Part-time work dropped by 27.6 percent.

In May, the employment growth was driven by both part-time employment (addition of 70,000 jobs) and full-time work (addition of 219,000 jobs). This was attributed to the easing of lockdown restrictions and adaptations at workplaces.

Forecast for June 2020: 550,000

#5: Canada Unemployment Rate (07/10/2020 Friday 12:30 GMT)

In Canada, the unemployment rate increased to the 13.7 percent level in May from the 13.0 percent level in the prior month. The reading for the month, however, came in below analysts’ expectations of 15 percent. Still, the reading for the month represented the highest jobless rate ever since comparable series was started in 1976. It was attributed to the increase in the number of job seekers following the easing of lockdown restrictions in a few parts of the nation. The labor force participation rate rose to the 61.4 percent level from the 59.8 percent level in April. However, the unemployment rate among youth overall continued to rise to the 29.4 percent level from the 27.2 percent level in the prior month, the highest rate ever registered.

Forecast for June 2020: 12.5 percent

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