Busy Week Ahead for FX Markets with RBA, ECB, and US NFPs Due
- RBA decision on Tuesday likely to be the first of many this year for the RBA that result in no policy changes.
- ECB meeting on Thursday, despite coming with new staff economic projections, is not likely to bring about any changes as the ECB’s taper is in sight.
- US Nonfarm Payrolls on Friday are the ‘cherry’ on top of the Fed’s March rate hike.
03/07 Tuesday | 03:30 GMT | AUD Reserve Bank of Australia Rate Decision
Slipping below 0.76 cents versus the US Dollar on Friday, the Australian Dollar has weakened ahead of the Reserve Bank’s March 3 rate decision. The move does not likely reflect market expectations: there is a 0% chance of a rate cut on Tuesday, and only a 0.7% chance of a rate hike, according to overnight index swaps. Put simply, a bevy of mixed inflation, growth, trade, and employment data will likely keep the RBA sidelined for the better part of, if not all of, 2017: by December, there is still less than a 1-in-3 chance of a rate move, according to rates markets.
03/09 Thursday | 01:30 GMT | CNY Consumer Price Index (FEB)
Chinese consumer prices rose by +2.5% (year-on-year) in January, the fastest rate since May 2014. The print also beat expectations of a +2.4% rise and December’s reading of +2.1%. January’s boost was driven by a +2.7% rise in foods while non-food prices rose by +2.5%. While January’s uptick in inflation looks strong, the official Chinese statistics agency noted that prices were probably boosted by a boost in output ahead of the two-week Lunar New Year holiday. As such, market watchers are looking for a decline in headline inflation in February, with the headline reading due in at +1.8%, which would represent a dramatic stepdown.
03/09 Thursday | 12:45 GMT | EUR European Central Bank Rate Decision
While the European Central Bank will be releasing new staff economic projections (SEPs) due on Thursday, the scope for the ECB to act at this meeting, one way or the other, seems very limited. To be fair, economic data has been improving steadily in recent weeks, beyond consensus expectations by a wide margin. The Euro-Zone Citi Economic Surprise Index finished last week at +70.0, up from +55.9 a month earlier. On the other hand, despite the German and Euro-Zone CPIs running through +2%, the 5-year, 5-year inflation swap forwards, one of President Draghi’s favorite measures of inflation, have slipped back the past month, finishing at 1.705% at the end of last week from 1.774% four-weeks ago.
ECB President Mario Draghi is likely to balance out his optimism over near-term economic data against longer-term concerns about the political scene in Europe and inflation that has just started to show signs of life near their medium-term target. Similarly, it seems likely that he’ll downplay the ECB’s faith that inflation is returning in a meaningful way, so as to not spook markets into thinking that the ECB will be withdrawing liquidity at a faster than expected pace; the ECB’s ‘taper’ will still amount to over half-a-trillion worth of European sovereign debt purchased through the end of the year.
03/10 Friday | 12:30 GMT | CAD Net Change in Employment, Unemployment Rate (FEB)
Unemployment in Canada remains stubbornly high despite decreasing by -0.5% over the last year to 6.8% in January. Employment rose by just over 48,000 in January, beating expectations of a 5,000 fall, with nearly all of the increase due to extra jobs in the service sector. Employment increased in Ontario, British Columbia, Nova Scotia and Newfoundland and Labrador, while fewer people worked in New Brunswick. The labor outlook may be helped this month after recent data showed Canadian 4Q December GDP (year-on-year) rose to +2.0%, beating expectations of +1.7% growth and November’s print of +1.9%. The labor market report is unlikely to yield anything substantive that will provoke the Bank of Canada to shift its course.
03/10 Friday | 12:30 GMT | USD Change in Nonfarm Payrolls, Unemployment Rate (FEB)
The key issue surrounding the February US Nonfarm Payrolls report is whether or not the US labor market will give one further indication that it is strong enough to justify a more aggressive pace of Fed tightening. Current expectations for the data are modest, with the Unemployment Rate expected to hold at 4.9%, and the headline jobs figure to come in at +175K.
The trend of +200K jobs growth per month has recently been a psychological level for markets, but Fed leaders and centrists (the Goldilocks of the Fed; not too hawkish or too dovish) tend have another number in mind. In October 2015, San Fran Fed President John Williams wrote in a research note that he believed growth of +100K jobs per month was enough to sustain the growth in the labor force and maintain the current unemployment rate. In December 2015, Chair Janet Yellen reiterated this same view. And, just last week, she noted that the economy can maintain its current unemployment rate by producing between 75K and 125K jobs per month. By the Atlanta Fed Jobs Growth Calculator, assuming a 4.9% longer term unemployment rate, the economy only needs +108K job growth per month to sustain that level through the end of 2017.
Pairs to Watch: EUR/JPY, USD/JPY
--- Written by Christopher Vecchio, Senior Currency Strategist, Nick Cawley, Analyst
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