Talking Points:
European Central Bank President Draghi Holds a Press Conference After Rate Decision.
Labor Market Data for Eurozone, Canada, and United States.
Forex Markets Face Perfect Storm of Critical Event Risk Ahead.
For a run down on rate hike probabilities and the significant event risk this week view the tables at the bottom of this page.
With a packed Economic Calendar, the week of March 31st – April 4th kicks off the first week of the second trading quarter with significant event risk on tap. The Economic Calendar this week is busy as key figures that shape monetary policy will be released out of the Eurozone, Australia and United States. The impact of the data to monetary policy is likely spark volatility across the major currencies. A quick rundown of the major fundamental factors to impact foreign exchange movements are as follows.
Euro-Zone Consumer Price Index Estimate (YoY) (MAR)
March’s PreliminaryEurozone CPI will be closely watched by market participants as inflation highly impacts how monetary policy is shaped. Economic data and especially inflationary figures out of the Eurozone has disappointed as of late. The latest round include dismal final February Eurozone inflation figures that suggests disinflation continues to grip the Euro-zone. Only aggravating the situation and boosting speculation for ECB stimulus is German CPI released March 28 that showed annual German inflation fell to a 3-year low in March. The primary objective of the ECB’s monetary policy is to maintain price stability below, but close to 2 percent over the medium term. The current inflation data certainly puts ECB policy makers in a precarious scenario.
Australia Reserve Bank of Australia (RBA) Rate Decision
Last week the Australian Dollar (AUD) outperformed as fundamental conditions improved for Australia albeit concerns that the Chinese economy may be slowing. Much of the underperformance of the Australian Dollar last year was due to a slowing Chinese economy alongside a failure by the Australian economy to rebalance from its mining activities. Adding to that is Fed’s easing of its QE3 stimulus program. As of late the Australian economy surprised with a stronger-than-expected labor market, and the Citi Economic Surprise Index held up at 49.7 by March 24, just off the yearly high of 50.6 on March 13. The Australian Dollar’s performance reflects the impact that change in monetary policy expectations can have – in this case the change was a retreat from concerns of further rate cuts. The RBA mentioned in their previous central bank meeting that they foresee a period of rate stability. According to a survey of rate hike probability by Credit Suisse, economists do not expect a rate hike at this RBA rate decision (for more information on rate hike probabilities views the table at the bottom of this page).
European Central Bank Rate Decision (APR 3)
ECB President Mario Draghi will hold a press conference after the rate decision, and this event may spark a meaningful move in the Euro. The Euro has been under pressure against many of its counterparts last week following comments made by ECB President Draghi (on the resilience of the Euro) and a recent string of disappointing economic data out of the Euro-zone. Further weighing the Euro against the US Dollar is recent shift on monetary policy stance between the ECB and Fed. There is an appearance of a more hawkish FOMC that sees the first rate hike around six months after QE3 is fully tapered. The ECB worries about growth and stubborn low-inflation driving speculation about a near-term expansion of ECB stimulus efforts.
US Non-Farm Payrolls (NFP)
US Non-Farm Payrolls (NFP) are sure to offer a final bout of volatility to end the economic calendar week. U.S. data has been mixed as of late, but Fed Chairman Janet Yellen along with several central bank members have repeated that with the absence of an economic downturn the reductions in asset purchases are likely to continue. The world’s largest economy is expected to add another 200K jobs in March.
Visit the DailyFX Calendar for up to date forecast figures on the top 5 economic events for this week.
Rate Hike Probabilities / Basis-Points Expectations
— Written by David Maycotte, DailyFX Research Team. Questions, comments or concerns can be sent to dmaycotte@FXCM.com.
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