Let’s start with the bad news: the calendar this week doesn’t have the headline attraction that last week brought forth, in the form of a Federal Reserve Rate Decision on Wednesday, a European Central Bank Rate Decision on Thursday, and the April US labor market reading on Friday. Manageable volatility was prevalent last week, particularly at the end, and while it hasn’t continued thus far on Monday, it is likely to return in the middle of this week. Which brings me to the good news: there are several Asian-Pacific-centric events on the docket that are likely to stir the underlying fundamentals of the commodity currencies, offering trading opportunities anew for scalpers and longer-term traders alike.
With two more central bank meetings this week, we once again are afforded a glance at the efforts that are “causing tremendous imbalance in the markets, where the S&P 500 presses record highs while global yields (benchmark rate of return) are just off record lows,” as Chief Currency Strategist John Kicklighter notes.Certainly, the Reserve Bank of Australia policy meeting on Tuesday and the Bank of England policy meeting on Thursday are less-high profile than the Fed and the ECB, but they remain significant nonetheless.
Rate Hike Probabilities / Basis-Points Expectations
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
05/07 Tuesday // 04:30 GMT: AUD Reserve Bank of Australia Rate Decision
Rate cut expectations picked up in April and the few days in May thus far, with the Credit Suisse Overnight Index Swaps index suggesting a 52% chance of a 25-bps cut on Tuesday. However, of the 29 economists polled by Bloomberg News, only eight believe that 25-bps rate cut to 2.75% is likely (the other 21 are forecasting a hold at 3.00%). Given the fact that major Australian and Chinese data has only recently began to sour (although the story of slowing Chinese growth has been building for some time), I believe that we won’t see a rate cut – yet. I do expect a rate cut in the coming months, perhaps as soon as the June meeting – although that still is heavily reliant on a continued downturn in significant data. We’ll have a better gauge of where the RBA stands, I think, on Thursday, after the April labor market report is released.
CONSENSUS: 3.00% key rate (unch)
PRIOR: 3.00% key rate (unch)
The key pairs to watch are AUDUSD and EURAUD. On a hold, the Australian Dollar is likely to have a bullish reaction, given the slight edge in market bias towards a rate cut (52% chance).
05/09 Thursday // 01:30 GMT: AUD Employment Change & Unemployment Rate (APR)
Australian labor market reports the past few months have been nothing short of erratic, with a range of -36.1K to +74.0K in the past two months alone. The 3-month jobs average has whipsawed from +28.3K in February, the highest trailing average since the 3-month period ending in March 2012, to +17.0K in March. What’s most concerning aside from the volatility in the headline figure is the recent drop in the participation rate, from 65.3% in February to 65.1% in March. How does this all add up? The drop in the participation rate should create an artificial drop in the unemployment rate thanks to the labor force shrinking, and yet that didn’t happen; weakness in the Australian jobs market was quite prevalent. With recent Australian inflation data sliding lower and Chinese growth data
CONSENSUS: +11.0K; 5.6%
PRIOR: -36.1K; 5.6%
The key pairs to watch are AUDUSD and EURAUD.
05/09 Thursday // 01:30 GMT: CNY Consumer Price Index (APR)
The Bank of Canada has recently called a rate hike “less imminent,” (February policy statement) citing the “muted outlook for inflation” (March policy statement). Accordingly, “the considerable monetary policy stimulus currently in place will likely remain appropriate for a period of time, after which some modest withdrawal will likely be required, consistent with achieving the 2 per cent inflation target” (March policy statement). It’s evident that BoC policymakers are focused in on price pressures, raising the specter of the Canadian Consumer Price Index to the most important data impacting the Canadian Dollar. In line with consensus, I am expecting a small beat here that could uplift the Loonie.
CONSENSUS: +2.3% y/y
PRIOR: +2.1% y/y
The key pairs to watch are AUDUSD and AUDJPY.
05/09 Friday // 11:00 GMT: GBP Bank of England Rate Decision
The Canadian economy has hit a small rough patch, experiencing meager growth of under one percent on a yearly-basis, despite substantially accommodative monetary policy remaining in place. Alongside the recent bout of soft inflation figures (3Q’12 to present), the moderation in growth is a main culprit in the BoC’s shift keeping accommodative stimulus in place for “a period of time.” The good news is that growth purportedly returned, after a small contraction in January. The print should fall in line with improved Canadian data from the previous day.
CONSENSUS: 0.50% key rate (unch); APT on hold at £375B
PRIOR: 0.50% key rate (unch); APT on hold at £375B
The key pairs to watch are EURGBP and GBPUSD.
05/10 Friday // 12:30 GMT: CAD Employment Change & Unemployment Rate (APR)
US defense spending plummeted by -22% annualized in the 4Q’12, leading to an initial -0.1% reading for GDP of the world’s largest economy. But strong positive revisions to consumption figures have pushed the secondary reading up to +0.1% annualized, and now, there is scope for an even bigger improvement at the third and final adjustment. With the US budget sequestration hitting in March 2013, a strong final revision to the 4Q’12 GDP figure could go a long way towards easing discouraged sentiment over the fiscal drag.
CONSENSUS: +15.0K; 7.2%
PRIOR: -54.5K; 7.2%
The key pairs to watch are AUDCAD and USDCAD.
— Written by Christopher Vecchio, Currency Analyst
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
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Source: Daily fx