Inflation, Interest Rates, and the Job Market: A Weekly Economic Outlook

AUD

The high-beta Aussie dollar was one of the better performers in the G10 last week, buoyed by more signs of weakness in the latest US jobs data and growing bets in favour of a widening in US-Australia rate differentials. The generally brighter domestic economic activity data out in the last few weeks has also provided some tailwinds for AUD, with markets continuing to bet that an end to the RBA’s easing cycle is probably not too far away. A hold at this month’s meeting (30/09) is now practically inked in. Attention this week will be on Thursday’s employment report for August, with economists bracing for a number roughly in line with last month’s 24.5k print. Yet, given the extent of the rally in AUD since the start of the month, we see a good amount of room for a correction in the currency should the data surprise to the downside.

USD

This week’s meeting of the Federal Reserve is shaping up to be a crucial one, and not just from the point of view of routine monetary policy. It is not clear whether Governor Cook will  be able to participate,as she battles Trump in court over his attempted firing. But the spotlight will be over which aspect of stagflation Chair POwell chooses to focus on: the slowing labor market, a more urgent problem after the BLS revealed that it had massively overstated job gains, or an inflation rate that is still clearly above target, has been for five years, and is now if anything trending higher – even before any meaningful upward pressure from the tariffs shows up in the data. We do not envy the Fed’s position here.

CNY

Not much has changed with regards to USD/CNY of late. Volatility died down last week with the pair stabilising around the 7.12 mark. As most currencies we watch, the yuan has made some gains versus the broadly weaker US dollar. It is, nevertheless, still kept on a leash, with more dynamic shifts in the exchange rate few and far between over the recent months. Most recent macro news from China has been underwhelming. CPI returned into deflationary territory in August after two months, with prices falling more than expected (-0.4%). It’s the opposite of what economists want to see and does not bode well for growth. Trade activity weakened as well, with exports expanding at the weakest pace in six months, as trade jitters continue. This week, headlines from ongoing US-China trade talks in Spain will be worth watching, as well as the monthly data dump, which will kick-off the week.