- The first full week of February sees three central bank rate decisions in the Bank of Canada, the Bank of England, and Banxico, but not one is expected to move on rates; commentary will be key.
- Jobs data from New Zealand will underscore the RBNZ’s decision to keep rates on hold, while Canadian labor market data will continue to remain uneven, keeping the BOC on hold as well.
- Attention will still remain on Brexit, the US-China trade war negotiations, and the impending US government shutdown.
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02/05 Tuesday | 03:30 GMT | AUD Reserve Bank of Australia Rate Decision
The Reserve Bank of Australia meets for the first time in 2019 this week but expectations for any change in policy – looser or tighter – are completely flat. Indeed, at 0% probabilities for either a 25-bps rate hike or cut, the coming RBA meeting will be defined by not what is done but rather by what is said. Taking into account that inflation (+1.8% y/y last reading) is just below the midrange of the RBA’s target (+1-3%), the labor market is stable (5% unemployment rate), and the growing concerns of a global slowdown thanks to Australia’s two largest trading partners locked in a trade war, a broadly neutral tone by the RBA should be anticipated. Accordingly, the first policy meeting of 2019 may not produce much direction in the Australian Dollar unless there’s a noticeable change in tone in the communique. Markets are anticipating a broadly neutral RBA for most of 2019; there is a 35% chance of a 25-bps rate cut by the end of the year.
02/05 Tuesday | 15:00 GMT | USD ISM Non-Manufacturing/Services Composite (JAN)
The ISM Non-Manufacturing/Services Composite due out on Tuesday covers economic activity for roughly two-thirds of the world’s largest economy, making it far more important than the Manufacturing Composite due out the prior Friday. Due in at 57 from 58, there is an expectation that some growth momentum has been lost. We’ll be watching the data carefully to see how the US government shutdown impacted the economy in January. If the January US Nonfarm Payrolls report is any indication, then we should be expecting another strong Non-Manufacturing/Services Composite.
02/06 Wednesday | 21:45 GMT | NZD Employment Change & Unemployment Rate (4Q)
According to a Bloomberg News survey, jobs growth in New Zealand slowed by the end of 2018, underscoring what has becoming a neutral policy environment for the Reserve Bank of New Zealand. The rate of quarterly jobs growth is due in at +0.3% from +1.1% previously, while annual rate is set to slow to +2.6% from +2.8%. Coupled with signs that there’s disinflation across the developed world, the RBNZ is unlikely to find the upcoming jobs data reassuring. As it stands, rates markets are pricing in a 0% chance of a rate move at the February 13 policy meeting, and there’s a 20% chance of a 25-bps rate cut by June 2019.
02/07 Thursday | 12:00 GMT | GBP Bank of England Rate Decision
The Bank of England rate decision this coming Thursday is part of what is colloquially known as ‘Super Thursday,’ when the BOE holds its policy meeting, releases a rate decision, and updates is Quarterly Inflation Report (QIR). Released in February, May, August, and November, the QIR is the BOE’s version of the Federal Reserve’s Summary of Economic Projections or the European Central Bank’s Staff Economic Projections. As such, much like the Fed or the ECB, traders have become conditioned into only expecting policy changes by the BOE on ‘Super Thursdays.’
However, with the Brexit discussions still ongoing, the BOE will stay as quiet as possible regarding the situation so as to not appear as trying to influence the outcome. If the BOE acknowledges that it has prepared for a no deal, ‘hard Brexit,’ it shouldn’t be considered a big deal: it’s better to prepared than not. Given that topline inflationary pressures have been fading, the impetus for the BOE to act as soon as possible once Brexit is wrapped up appears to have faded. We’ll be expecting a largely neutral BOE this week.
02/08 Friday | 13:30 GMT | CAD Net Change in Employment & Unemployment Rate (JAN)
The Canadian labor had an uneven 2018, and 2019 looks like it might start off in a similar fashion. The January Canadian labor report is set to see topline growth at a modest +2K, below the +9K jobs added in December. The pace of gains isn’t enough to keep up with the number of job market participants seeking work, however, and the unemployment rate is due to increase to 5.7% from 5.6%. Such labor market data, coupled with the softening inflation backdrop, should give the Bank of Canada cover to keep rates on hold for the first few months of 2019, mirroring the Federal Reserve’s policy tightening efforts.
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at email@example.com