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FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

Christopher Vecchio, CFA, Senior Strategist

FX Week Ahead Overview:

  • The first week of a new month brings about significant event risk, including two central bank rate decisions from the Bank of England and the Reserve Bank of Australia.
  • Most attention is away from the US Dollar this week, which sees its truly only important release this week on Friday.
  • Changes in retail trader positioning suggest that most USD-pairs are on mixed footing.
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For the full week ahead, please visit the DailyFX Economic Calendar.

02/02 TUESDAY | 03:30 GMT | AUD Reserve Bank of Australia Rate Decision

The Reserve Bank of Australia is meeting for the first time in 2021. The outlook from the end of 2020 remains valid: even after shifting the focus of policy setting at the November RBA meeting, where officials out a greater focus on actual labor market outcomes (e.g. the unemployment rate) over expected price pressures, the December RBA meeting produced a general consensus that, yes, the situation was still “better than expected,” in Governor Phillip Lowe’s words.

The RBA has effectively admitted that they’re holding interest rates low because, well, everyone else is doing it. Otherwise, the data just don’t support the efforts, and rates markets don’t foresee any shifts in policy henceforth. According to Australia overnight index swaps, there is between a 16% to 25% chance of a rate cut through December 2021, which appears to be nothing more than a pricing quirk due to the RBA’s extraordinary efforts to institute yield curve control. The RBA will be keeping its overnight cash rate at 0.1% or lower for at least the next two and a half years.

IG Client Sentiment Index: AUD/USD Rate Forecast (February 1, 2021) (Chart 1)

FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

AUD/USD: Retail trader data shows 47.11% of traders are net-long with the ratio of traders short to long at 1.12 to 1. The number of traders net-long is 26.82% higher than yesterday and 2.41% higher from last week, while the number of traders net-short is 16.22% higher than yesterday and 2.46% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/USD prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.

AUD Forecast
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02/02 TUESDAY | 21:45 GMT | NZD Employment Change & Unemployment Rate (4Q)

With the global economy struggling to pick itself up from the coronavirus pandemic, even the best are starting to stumble. New Zealand, which has dramatically stemmed the COVID-19 outbreak, leading to the most resilient developed economy during the pandemic, appears to be getting sucked into the economic maelstrom. According to a Bloomberg News survey, the New Zealand economy did not see any jobs growth in 4Q’20, and as a result, the labor market will see its headline unemployment rate rise from 5.3% to 5.6%. Like the RBA, the Reserve Bank of New Zealand can’t do much to stop a strengthening New Zealand Dollar as a smaller central bank relative to the BOJ, ECB, or Fed.

IG Client Sentiment Index: NZD/USD Rate Forecast (February 1, 2021) (Chart 2)

FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

NZD/USD: Retail trader data shows 35.14% of traders are net-long with the ratio of traders short to long at 1.85 to 1. The number of traders net-long is 11.64% higher than yesterday and 16.18% lower from last week, while the number of traders net-short is 9.89% higher than yesterday and 5.35% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests NZD/USD prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed NZD/USD trading bias.

02/04 THURSDAY | 12:00 GMT | GBP Bank of England Rate Decision

Brexit is resolved. What Brexit might look like is no longer a theoretical exercise; we now know that the EU-UK trade relationship will resemble the EU-Canada trade relationship. This is a relief for BOE policymakers, who are contending with a struggling economy thanks to the coronavirus pandemic. Avoiding a ‘no deal, hard Brexit’ means avoiding the sudden imposition of tariffs and taxes, which would further stifle an economy that appears to be backsliding heading into 1Q’21. Talks of negative interest rates are overblown.

IG Client Sentiment Index: GBP/USD Rate Forecast (February 1, 2021) (Chart 3)

FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

GBP/USD: Retail trader data shows 49.69% of traders are net-long with the ratio of traders short to long at 1.01 to 1. The number of traders net-long is 73.42% higher than yesterday and 19.23% higher from last week, while the number of traders net-short is 0.67% lower than yesterday and 10.98% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBP/USD prices may continue to rise.

Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBP/USD price trend may soon reverse lower despite the fact traders remain net-short.

02/05 FRIDAY | 13:30 GMT | CAD Employment Change & Unemployment Rate (JAN)

Over six months of positive Canada jobs data hit an abrupt halt in December, and according to a Bloomberg News survey, the pullback will deepen. Consensus forecasts suggest that the January Canada jobs report will reveal that the economy lost another -47.5K workers, after shedding -52.7K in December. Accordingly, the unemployment rate is due to rise to 8.9% from 8.8%, the first consecutive monthly rise in eight months. A recently weaker Canadian Dollar may not find relief in these data.

IG Client Sentiment Index: USD/CAD Rate Forecast (February 1, 2021) (Chart 4)

FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

USD/CAD: Retail trader data shows 65.53% of traders are net-long with the ratio of traders long to short at 1.90 to 1. The number of traders net-long is 28.18% higher than yesterday and 12.43% higher from last week, while the number of traders net-short is 25.45% higher than yesterday and 19.30% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/CAD prices may continue to fall.

Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bearish contrarian trading bias.

02/05 FRIDAY | 13:30 GMT | USD Non-farm Payrolls & Unemployment Rate (JAN)

After a contraction in December, the US labor market appears to have stabilized in January. Consensus surveys from Bloomberg News see the world’s largest economy having added +50K jobs following the loss of -140K jobs in December. However, the unemployment rate (U3) is set to stay on hold at 6.7%. The data are not likely to offer much confidence to market participants, who are just as likely watching the weekly initial jobless claims data. But the data may prove useful in shaping the conversation around the Biden administration’s fiscal stimulus package, which is still being hashed out between Senate Democrats and Republicans.

USD Forecast
USD Forecast
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--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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

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