Market Outlook for the Week of 6-10 March | Forexlive

This week will be a busy one
with multiple central bank meetings, with the most anticipated events probably
being the RBA cash rate decision and the U.S. NFP.

The RBA cash rate and rate statement will land on Tuesday and later that
day Fed Chair Powell will testify on the semi-annual monetary policy report
before the Senate Banking Committee, in Washington DC. His speech is scheduled
before any important U.S. economic data gets released this week.

On Wednesday, we’ll get the U.S. ADP Non-farm employment change and JOLTS job
openings, as well as the BoC rate statement and overnight rate in Canada.

The U.S. unemployment claims are expected Thursday and Friday will be a
busy day with the monetary policy statement in Japan and the BoJ press
conference; the employment change and unemployment rate in Canada; and the
average hourly earnings m/m; non-farm employment change and the unemployment
rate in the U.S.

The RBA is expected to deliver a 25bps rate hike at this week’s meeting.
The economic situation shows signs of slowing down with GDP data softening and
inflation figures declining in January. However, inflation remains at 7.4% y/y,
much higher than the bank’s target range of 2-3%, so the RBA will wait for
confirmation that the recent decline is not just a seasonal trend before
considering a potential pause in its hiking cycle.

Analysts from Wells Fargo also foresee a 25 bps hike in April, but there is
interest in this week’s announcement for any clues about potential hikes beyond
that.

Fed Chair Powell speech in the Senate on Tuesday, followed by a similar
speech in the House of Representatives on Wednesday, will be watched for any
hints that the rate hike at the March meeting might be more hawkish, of 50bps
instead of the currently expected 25bps, as a consequence of hotter data.

The BoC meeting is not likely to provide any surprises, as the bank already
signalled a pause in its hiking cycle to see the effects of monetary policy.
The pause is expected to continue for a while, but the high levels of inflation
and labour market tightness will definitely put pressure on the bank, so we
might see a hawkish tone at the meeting. There is speculation that the BoC might
return to rate hikes towards the end of the year, but a lot of things can
happen until then.

This week’s BoJ meeting is the last one with Kuroda as Governor so it’s
likely to be a quiet one with no significant changes in monetary policy.
However, over the past months the BoJ did deliver some surprises, so there is a
small risk of YCC policy tweaks, according to analysts from Nomura. During his
recent remarks, governor nominee Ueda noted that the actual monetary policy is
appropriate.

On Friday the spotlight will be on the NFP data with the consensus being
206K. The average hourly earnings m/m are expected to rise by 0.3% and the
unemployment rate is likely to remain unchanged at 3.4%. If the NFP prints in
line with expectations it will signal that the labour market is cooling down,
as these numbers will be softer than previous prints. Some analysts believe the
extremely high and unexpected print in January of 517K could have been the
result of seasonal adjustments which could impact the February data negatively.
But the reality is that anything could happen in this report, so market
volatility in the hours or even days around the report could be high, ING
analysts said.

USD/CAD expectations

USD/CAD experienced a dull week where the pair moved in a range. The Fed is
set to continue its hiking and potentially become even more aggressive, while
the BoC has paused its hiking cycle.

From a technical point of view the pair still has room for appreciation in
the near future. A correction is expected until the 1.3535 level of support
and, if that level holds, the next target could be the 1.3680 – 1.3700
area.

On the downside, the next levels of support are at 1.3465 and 1.3375.

As a reminder, March is seasonally a strong month for the USD, but also for
crude oil which will be supportive for the CAD, so the pair might continue to
move in a range. A risk for this trade is the upcoming NFP data which is
surrounded by uncertainty and could lead to volatility.