The Week Ahead: Services PMIs, The RBA, and the Chinese Economy in Focus

The US Dollar

On Monday, August 5, the US ISM Services PMI will influence US dollar demand. An unexpected fall in the PMI could fuel speculation about a hard US landing, as it accounts for over 70% of the US economy. Investors should also consider the sub-components, including price and employment. Softer prices and labor market conditions would support expectations of multiple 2024 Fed rate cuts.

The focus will shift to the US labor market on Thursday, August 8. Higher-than-expected continuing jobless claims could raise bets on multiple 2024 Fed rate cuts.

Weaker labor market conditions could impact wage growth, reducing disposable income. A downward trend in disposable income may dampen consumer spending and demand-driven inflation.

Beyond the numbers, investors should monitor FOMC member commentary. Views on the economy and the Fed’s interest rate path could move the dial. FOMC members Mary Daly (Mon) and Thomas Barkin (Fri) are on the calendar to speak.

The EUR

On Monday, August 5, Euro area service sector PMIs will affect EUR/USD demand. Downward revisions to the German and Eurozone Flash PMIs could raise investor bets on a September ECB rate cut. Beyond the headline PMI, the prices and employment sub-components also require consideration.

German factory orders will draw investor attention on Tuesday, August 6. Recent German economic indicators have sparked recession fears. Another slump in orders could pressure the ECB to consider multiple 2024 rate cuts.

On Wednesday, August 7, German industrial production and trade data will spotlight the German economy. A continued decline in industrial production and weaker trade terms may signal a further deterioration in demand. A weaker demand environment could support a more dovish ECB rate path as concerns about the global economy intensify.

Other stats include finalized German inflation numbers on Friday, August 9. However, barring a revision to the preliminary print, the numbers are unlikely to impact EUR/USD demand.

Beyond the stats, ECB member commentary also requires consideration. Views on inflation, the economic outlook, and the timing of rate cuts will impact demand for the EUR.

The Pound

On Monday, the finalized UK services PMI will influence buyer demand for the Pound. Downward revisions to the Flash PMI could fuel speculation about a Q4 2024 Bank of England rate cut, accounting for over 70% of the UK economy. Additionally, investors should consider the employment and price sub-components, considering the sector’s significant contribution to inflation.

Weaker labor market conditions could dampen wage growth and consumer spending, impacting demand-driven inflation.

The BRC Retail Sale Monitor will be in focus on Tuesday. Another decline could fuel speculation about a UK recession. Private consumption contributes over 60% to the UK economy.

The Loonie

Canadian trade data will put the Loonie in the spotlight on Tuesday. A higher-than-expected trade deficit could signal a weakening demand environment, supporting a more dovish Bank of Canada rate path.

Investors should also consider import and export trends.

The Bank of Canada’s Summary of Deliberations will draw investor interest on Thursday. Suggestions of further rate cuts could reduce buyer appetite for the Canadian dollar.

On Friday, Canadian employment data will be crucial. An unexpected rise in the unemployment rate could fuel speculation about a September BoC interest rate cut. A deteriorating labor market could affect wage growth and consumer spending.

Other stats include the Ivey PMI. However, the trade and employment data will likely impact Canadian dollar demand more.

The Australian Dollar

The RBA interest rate decision and press conference will spotlight the Aussie dollar on Tuesday. An unexpected interest rate hike could fuel Aussie dollar demand.  However, a more dovish RBA could sink the AUD/USD as concerns mount about the global economy.

In the June press conference, RBA Governor Michele Bullock stated that Board Members discussed raising interest rates.

NAB Business Confidence numbers also need consideration on Thursday. Waning business confidence could signal a pullback in spending and job creation. Weaker hiring could affect consumer spending, supporting a more dovish RBA rate path.

The Kiwi Dollar

On Wednesday, labor market data will influence buyer demand for the Kiwi dollar. A higher New Zealand unemployment rate could fuel speculation about a possible RBNZ interest rate cut.

The Japanese Yen

On Monday, finalized Services PMI numbers from Japan will influence Japanese Yen demand. An upward revision to the Flash PMI could raise investor bets on a Q4 2024 Bank of Japan rate hike. The Bank of Japan expects the services sector to support the economy and fuel demand-driven inflation.

However, average cash earnings and household spending could impact buyer demand for the Yen more on Tuesday. Higher wages and household spending could drive consumer price inflation, supporting a more hawkish BoJ rate path.

Investors should also track BoJ chatter following the BoJ rate hike and cut to Japanese Government Bond (JGB) purchases. Hawkish views on the interest rate trajectory could increase Yen demand.

Out of China

On Monday, China’s Caixin Services PMI will be in focus. An unexpected drop in service sector activity could impact market risk sentiment. Deteriorating economic conditions could affect the broader global economy.

On Thursday, trade data will also draw interest. Investors should consider import and export trends. Softer imports and exports would signal a weakening demand environment, fueling speculation about slower growth in Q3 2024. China saw growth slow from 5.3% in Q1 2024 to 4.7% in Q2 2024.

Inflation figures from China will spotlight the Chinese economy on Friday. Softer inflation figures would also suggest weaker demand and economic growth.

Beyond the numbers, investors should consider chatter from Beijing. Speculation about a fiscal stimulus package could boost demand for riskier assets.