FX Markets Look to RBA Rate Decision, FOMC Minutes, March US NFPs
- RBA policy meeting may come and go with much ado about nothing; rates markets aren’t pricing in any policy action this year.
- Friday’s US labor market report should confirm that the US economy remains on track to stay at “full employment,” which has underpinned the hawkishness aspect of Fed policy for the past 15-months.
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The Reserve Bank of Australia is expected to keep rates unchanged at 1.50% on Tuesday as the country continues its transition after the end of the mining boom. At the last policy meeting RBA governor Philip Lowe noted that exports had risen strongly and non-mining investment had also risen over the last year, due in part to the low interest rate environment. Governor Lowe added that inflation is expected to pick-up gradually over the course of the year, while the labor market should also continue to improve. The central bank is therefore unlikely to want, or need, to change its policy stance in the near future. Rates markets are not pricing in any shift in policy at any point in 2017.
04/05 Wednesday | 14:00 GMT | USD ISM Non-Manufacturing/Services Composite (MAR)
The March USD ISM Non-Manufacturing/Services headline reading is expected at 57 versus a prior reading of 57.6. The relatively similar headline reading expected this Wednesday is indicative of currently favorable business conditions that are easing off the strong burst in sentiment that has been so prevalent in US markets. The US Dollar should show heightened sensitivity to this report given the economy’s tendency to follow the performance of the service sector, which accounts for approximately two-thirds of jobs in the United States. Look for the data, in conjunction with the ADP Employment report, to shape expectations for Friday’s Nonfarm Payrolls report.
04/05 Wednesday | 14:00 GMT | USD March FOMC Meeting Minutes
The minutes from the Federal Reserve’s second meeting of the year will likely showcase the cautious optimism US policy officials have over their ability to normalize rates further this year, considering that they hiked rates by 25-bps. With a backdrop of “full employment” and inflation pressures moving above the Fed’s medium-term +2% target, the FOMC minutes should show confidencethat at least two more hikes will occur this year. The question will be what could bring about a rapid jump in rates? Fed Chair Yellen said that US President Trump’s fiscal stimulus had not been factored into the FOMC’s forecasts yet, but the degree to which this discussion took place will be important to recalibrate expectations after the early parts of the Trump agenda have failed to liftoff.
04/07 Friday | 12:30 GMT | CAD Full-time Employment Change & Unemployment Rate (MAR)
Canadian unemployment dropped unexpectedly in February, to 6.6% from a prior month’s 6.8%, the third consecutive fall in a row and the lowest rate since January 2015. Employment rose by +15.3K beating expectations of +2.5K new workers. Real GDP slowed down in the fourth quarter of 2016, to +0.6% from +0.9% in the third quarter, due to a slowdown in consumer expenditure and slightly lower business investment. Early market estimates for March unemployment see the rate ticking up to 6.7% with just +5K new jobs added.
04/07 Friday | 12:30 GMT | USD Change in Nonfarm Payrolls & Unemployment Rate (MAR)
The key issue surrounding the March US Nonfarm Payrolls report is whether or not the US labor market will continue to indicate 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 4.7%, 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, in late-February, 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 4.7% longer term unemployment rate, the economy only needs +121K job growth per month to sustain that level through the end of 2017.
Pairs to Watch: EUR/USD, USD/JPY, DXY Index, Gold
--- Written by Christopher Vecchio, Senior Currency Strategist, Nick Cawley, Analyst
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