FX Majors Weekly Outlook (06-10 March) | Forexlive
UPCOMING
EVENTS:
Tuesday: RBA
Policy Decision, Fed Chair Powell.
Wednesday:
US Job Openings, BoC Policy Decision
Thursday: US
Challenger Job Cuts and Jobless Claims.
Friday: BoJ
Policy Decision, US NFP.
Last week
the ISM
Manufacturing PMI missed expectations on the headline but new orders (proxy
for demand) and especially the prices paid (proxy for inflation) sub-indexes
surprised to the upside with the latter jumping back into expansion. This gave
the US Dollar a boost as fear of inflation has returned in February and the
market is looking at higher interest rates.
Next we had
the ISM
Services PMI on Friday and this one beat expectations and was hot almost
across the board. The sub-indexes for employment and new orders increased
further, but there was just a little downtick in the prices paid one, although it
remains still elevated.
The market reaction to this report was really baffling
with the stock market rallying hard, Treasury yields falling, and the US Dollar
being offered. I think it’s a wrong reaction and may be just a squeeze because
looking only at the little downtick in the prices paid and concluding it’s good
news it’s a bit of a stretch.
Below you
can see the updated chart of the US Dollar Index with all the recent catalysts.
If we get another strong NFP report this week, especially with Average Hourly
Earnings beating expectations, I would expect the high at 105.65 to break.
Tuesday: The RBA is
expected to hike by 25 bps bringing the Cash Rate to 3.60%. Recent economic
data has leant on the softer side as the unemployment rate rose and the CPI
missed expectations. The central bank is expected to acknowledge the
improvements while staying the course until the bank is confident that
inflation is on its path to their 2-3% target range.
Fed Chair
Powell will testify to congress this week, starting on Tuesday with the Senate
Banking Committee and then on Wednesday with the House Financial Services
Committee. Last time Powell spoke was after that blockbuster NFP report in
February and he reiterated that it would take some time to get inflation back
to their 2% target but strong labour market or inflation readings will require
a higher terminal rate that projected previously.
Since then,
we had many other economic reports and they’ve been all hot. Unfortunately,
Powell will speak before the NFP and CPI report, so he may just maintain a
hawkish rhetoric while repeating that they are data dependent and if they need
to do more they will do so.
Wednesday: Since the
Fed wants to see a softer labour market, jobs data should be on the top of the
market focus. US Job Openings report is expected to show a downtick to 10.600M
vs. the prior 11012M.
The Bank of
Canada is expected to be the first major central bank to pause its tightening
cycle with the rate held at 4.50% as the bank in its last meeting said that
they expect “to hold the policy rate at the current level if economic
developments evolve in line with their outlook”. Since then, GDP and inflation
data missed expectations.
Thursday: Another
set of US labour market data beginning with the Challenger Job Cuts followed by
Jobless Claims expected at 195K vs. the prior 190K.
Friday: The Bank
of Japan is expected to keep its policy unchanged with rates at -0.10% and YCC
to flexibly target the 10yr JGB yields at 0%. This is the last meeting with
Governor Kuroda as his term ends in early April and will be succeeded by Kazuo
Ueda. Although inflation and wages are increasing in Japan, the BoJ has
reiterated that it will keep with its ultra-loose monetary policy.
The US NFP
report is expected to show 200K jobs added in February vs. the prior 517K (!)
in January. That blockbuster report in January has been the topic of many
discussions about seasonal factors affecting the number. The unemployment rate
is expected to remain unchanged at 3.4%. Average Hourly Earnings are expected
at 0.3% M/M and 4.7% Y/Y. Recent jobs data has been all hot, which may suggest
that Friday’s report could be a good one.
This article
was written by Giuseppe Dellamotta.