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Central Bank Meetings in Focus as Inflationary Pressures Continue to Mount

Central Bank Meetings in Focus as Inflationary Pressures Continue to Mount

2011-02-25 23:45:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Next week will be an important week for the inflation debate, with three central banks expected to announce their key interest rates going forward. While the RBA, BoC, and ECB are each expected to keep their respective interest rates on hold, the rates themselves will not be the focal point as so much as the ensuing commentary. In recent weeks, officials from central banks across the globe have shifted their tones, with respect towards how accommodative policies will be going forward. As growth begins to heat up in the G-7 economies once again, and inflationary pressures accelerating faster and faster each month, it appears that it is only a matter of time until major central banks are forced to hike their rates in order to fight rising prices.

  • Canada Quarterly Gross Domestic Product Annualized (4Q): February 28 – 13:30 GMT

Canadian gross domestic product data surprised the market in November, when third quarter figures showed that the economy slowed more than economists had expected. While the second quarter showed expansion of 2.3 percent, the third quarter grew a mere 1.0 percent, lower than the 1.5 percent estimate according to a Bloomberg News survey. During the fourth quarter, the Canadian dollar gained 3.13 percent against its U.S. counterpart, suggesting that the strong Loonie may ultimately have weighed down export growth in the fourth quarter.

  • Reserve Bank of Australia Rate Decision (MAR): March 1 – 03:30 GMT

Although consumer expectations pegged inflation at 4.3 percent in February, an economy that has continued to grow at a modest pace throughout 2010 warrants no reason for a rate change. In fact, Australian growth is expected to have been at 2.6 percent in 2010, according to estimates ahead of Wednesday’s GDP data release. As such, RBA policy makers have been particularly neutral in regards to a rate change, even discounting the possibility at points. Governor Glenn Stevens in an interview two weeks ago stated “nothing much is happening for some time…I think we’re ahead of the game.” The markets, heeding Governor Stevens’ words, expects the overnight rate to remain at 4.75 percent until June, when the implied rate is forecasted to rise to 4.795 percent – a fairly insignificant 4.5 basis points.

  • Bank of Canada Rate Decision (MAR): March 1 – 14:00 GMT

Canada, like Australia, has been experiencing moderate growth over the past year, and early estimates peg the Canadian gross domestic product figure at 3.0 percent (annualized) for the fourth quarter. As the unemployment rate continues to fall, as it did once again in February, coupled with rising inflationary pressures – up 2.3 percent on a year-over-year basis in January – markets have begun to price in a shift in policy in the coming months. A Bloomberg News survey pegs the rate to remain on hold at 100 basis points on Tuesday, even as the implied futures rate for March is 1.320 percent. Accordingly, commentary following the release is crucial, as policymakers are likely to employ hawkish rhetoric as the Canadian economy heats up.

  • European Central Bank Rate Decision (MAR): March 3 – 12:45 GMT

While growth in recent months has accelerated in Europe, underlying price pressures have remained tempered. In fact, at a year-over-year inflation rate of 2.4 percent for January as forecasted thus far, it appears that consumer prices will remain within the Governing Council’s desired medium-term range. In fact, the implied overnight rate for March is 0.795 percent, below the current actual rate of 1.00 percent. For the time being, the key rate should remain on hold, though look for inflation hawks begin to circle, as policymakers have begun to shift their tone in recent days and weeks.

  • U.S. Change in Non-farm Payrolls (FEB): March 3 – 13:30 GMT

Following a disappointing non-farm payrolls figure last month, in which job growth was suppressed by harsh weather conditions throughout the country, a sharp rebound has been forecasted, with payrolls expected to expand by 190,000 jobs. Last month, payrolls expanded by 36,000, short of the 144,000 increase forecasted. If weather had been the problem, the actual figure could be higher, as companies tried to compensate for missed hiring opportunities. Also featured on Friday will be the Unemployment Rate, which after falling to its lowest level in 21-months in January, survey figures show that it should rise slightly back to 9.1 percent.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

Written by Christopher Vecchio, DailyFX Research.

To contact the author of this report, please send inquiries to: research@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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