The Morning Update

The USD holds firm, oil prices weaken, equity markets are down, and US yields are mixed as risk sentiment wanes ahead of US data. Currency and equity markets weaken as investors focus on this week's US data, which will provide insight into the health of the US economy and indicate how aggressively the Fed will cut rates in September. Investors will be focused on today's US manufacturing PMI data, culminating with the US nonfarm payrolls report on Friday. Markets are currently pricing an 80% chance of a 25 bps by the Fed in September, with expectations of a 50bps point rate cut dropping to 20%. Elsewhere, The Bank of Japan Governor Ueda reiterated that the central bank will continue to raise interest rates if the economy and prices perform as expected. Oil, copper, and other base metal prices have weakened due to concerns about Chinese growth. This week's focus is Tuesday's CAD Manufacturing PMI and US Manufacturing PMI. Wednesday German & EU PMI, CAD interest rate decision, US Jolts job opening, and Fed's Beige Book. Thursday, AUD RBA Governor Speech, EU Retail Sales, US ADP Employment Change, and ISM Services PMI. Friday, EU GDP, CAD Net Change in Employment, CAD Employment Rate, CAD Ivey PMI, US Average Hourly Earnings, US Nonfarm Payrolls, and US Unemployment Rate will guide markets this week.

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In other news, Netanyahu rejects 'surrender' to hostage deal pressure. French finance minister Le Maire warns of worsening public finances. China will launch an anti-dumping probe into Canadian canola exports in response to EV tariffs. Turkish inflation falls to 52% as high interest rates bite. Spain's crackdown on holiday rentals bodes well for luxury hotels. Russia signals its official stance on using nuclear weapons is about to change. Volkswagen warned of plant closures in Germany, citing an 'extremely tense' situation. The UK sparks diplomatic row by halting some arms licenses to Israel. New Zealand triples the entry levy it charges foreign visitors.

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In currency markets. The USD edges back to near fresh two-week highs as investors await key jobs data on Friday. JPY strengthens on the BoJ comments for higher interest rates. CNY steadies following disappointing August factor data, raising expectations for more government stimulus. CNY is flat, while Asian currencies weaken by 0.15% on average against the USD. Trading currencies remain mixed, with AUD tumbling by 0.9%, NZD & NOK weakening by 0.7%, SEK & ZAR falling 0.55%, CHF dipping by 0.1%, MXN Flat, and JPY rallying by 0.65% against the USD.

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In commodity markets, oil and silver prices fell 1.5%, natural gas prices rallied by 3.2%, Gold prices were up 0.15%, copper prices tumbled 3.1%, and wheat & soybean prices eased by 0.25%.

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CAD weakened in early trading, down almost 2% in the first two business days of September. The combination of weakening commodity prices, a firming USD, and the prospect of the Bank of Canada cutting interest rates on Wednesday added pressure on the Loonie. Domestically, economists expect the BoC to cut interest rates tomorrow, with the BoC Governor expected to maintain a dovish tone, setting the stage for three more interest rate cuts in 2024. Intraday, investors will focus on CAD and US Manufacturing PMI data to drive intraday direction.

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EURCAD holds steady ahead of US PMI data results and Wednesday's BoC's interest rate decision.

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EUR continues on its downward momentum, heading towards 1.1000 ahead of the US PMI data. As a cautious risk tone returns to markets ahead of next week's US interest rate decision, the USD extends its rebound off 13-month lows against the Euro. Domestically, ECB policymakers appear to be increasingly at odds with the outlook for EU growth, fearing a recession, while other policymakers remain concerned about lingering inflation pressures. Markets anticipate the ECB will cut rates in September, but further rate cuts in 2024 appear to be uncertain. The investor's primary focus will be Friday's critical Nonfarm Payroll this week.

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GBPEUR continues to edge higher, back toward its multi-year highs, as investors anticipate the BoE will keep its interest rates on hold in September.

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GBP finds support at 1.3100 ahead of US PMI Data. Renewed selling pressure amid a risk-averse market environment continues to pressure the pound, providing support to the USD. Investors will pay close attention to the employment component of the PMI survey after it dropped to its lowest level in four years in July. If we see another drop in the data, it could increase concerns over worsening conditions in the labor market and pressure the USD ahead of Friday's crucial NFP report. Markets will also monitor BoE's Breeden speech for any dovish comments that could give a signal on the BoE's September rate decision.

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