Week Ahead Central Banks to Face Tough Questions after Weak US Jobs

USD recovered from the NFP shock but September hike future uncertain The U.S. dollar stumbled on the news that the economy added fewer jobs than expected in August. The U.S. non farm payrolls (NFP) report showed only 151,000 positions versus the forecast of 180,000. Unemployment rate kept steady at 4.9 percent. The American currency was able to recover and finish the week ahead versus major pairs but the disappointing employment report puts a big dent on the chances of a rate hike in September. The U.S. Federal Reserve has been surprisingly hawkish about first the reduction of global risk and second about the pace of growth of the U.S. economy. The speech by Fed Chair Janet Yellen at Jackson hole put the September Federal Open Market Committee (FOMC) rate hike firmly in play, but as I mentioned earlier the next line was “Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook.” The soft jobs report will not derail the Fed’s outlook but could now leave the fate of the next Fed rate hike up to the inflation and retail sales numbers in the middle of September. The central bank calendar for the week of September 5 to 9 will bring into action the Reserve Bank of Australia (RBA) on Tuesday, September 6 at 12:30 am EDT. The Bank of Canada (BoC) on Wednesday, September 7 at 10:00 am EDT and the European Central Bank (ECB) on Thursday, September 8 at 7:45 am EDT. The RBA and the BoC are expected to leave rates unchanged with the only interventions being rhetoric from central bankers. The ECB is faces a bond buying challenge and might replicate the Bank of Japan (BOJ) strategy and purchase stocks, but it is not as straight forward for the central bank headed by Mario Draghi. Updates to the ECB’s forecasts and quantitive easing program are on the table but it is expected the central bank will stick to verbal easing as much as possible.