After a busy week with a lot of economic events and the decisions of central banks in focus, this one is likely to be a quiet one, as is usual following the NFP print.
The BoE and ECB hiked the rates by 50bps and Fed by 25bps, while all of them signalled that more hikes will follow. The market now expects another 50bps hike at the next ECB meeting in March, and a 25bps hike from the BoE.
The NFP came in high above expectations and the unemployment rate fell to 3.4% -- the lowest it's been in 50 years. The market is now pricing in another 25bps rate hike for the next FOMC meeting in March, but the Fed is data dependent and until then we'll have two more CPI reports and another NFP print. Even so, the bank is unlikely to change its hawkish tone.
Fed Chair Powell described the labour market as "extremely tight" based on the recent data, which indicates that the Fed wants to see more softening before considering any rate hike pause. However, UBS analysts warn that the payroll growth in January might have been fuelled by temporary factors like the mild winter weather and these are actually broader signs the labour market is cooling off to some extent.
The focus Tuesday will be on the RBA cash rate and rate statement. Fed Chair Powell is expected to speak in a moderated discussion at the Economic Club of Washington DC and it will be interesting to see what he has to say about the latest jobs report. BoC Governor Macklem is also scheduled to speak on how monetary policy works at a conference hosted by the Chartered Financial Analyst of Quebec. These talks shouldn't create market volatility, but it's worth keeping an eye on them.
Thursday we'll have the monetary policy report hearing in the U.K., followed by a busy Friday with the U.K. GDP m/m print, the employment change and unemployment rate in Canada and the preliminary UoM consumer sentiment and inflation expectations in the U.S.
A few Fed members are also scheduled to deliver their remarks this week.
The RBA is likely to hike the rate by 25bps, but according to some analysts, the market has this priced in already. The stubbornly high inflation in Australia poses a big problem for the bank and suggests the hiking cycle might not be over, but the market will watch for any change in language that could indicate a pause. At the December meeting the RBA stressed that it is not on a pre-set course.
In the U.S. the focus will be on the consumer sentiment and inflation expectations data. The high gasoline prices will likely lead to an increase of the 1-year inflation expectations median, but the 5-to-10-year expectations will remain the same at 2.9%, according to Citi.
In Canada, even though the net employment change could see a strong median rise by 25k, the unemployment rate could increase to 5.1% from 5.0% as a result of stronger immigration and therefore higher participation in the labour market, Citi analysts said.
In the U.K. GDP data will show whether the economy entered a technical recession during the second half of last year, according to Wells Fargo. Overall, the economic situation is expected to be negatively impacted in the near future with consumer spending under pressure.
USD/CAD expectations
On the H1 chart the USD/CAD closed the week near the 1.3415 resistance. A correction is expected until the 1.3350 level of support. If that level holds, the next target could be 1.3515.
The BoC raised the rates to 4.5% and signalled that it will keep them at this level. Other hikes could follow in the future as necessary to keep inflation under control, but for now the pause in the hiking cycle was a dovish surprise. The Governor also noted that rate cuts are not on the table at this point when asked about recession risks.
USD/CAD has prospects for further appreciation in the near future.
U.S. Dollar Index (DXY) expectations
After stronger than expected jobs data the possibility of any rate cuts has been pushed further away. On the H1 chart the DXY looks good for buying opportunities. A correction is expected until the 101.80 level of support and if that level holds, the next target could be 103.90.
On the downside the next levels of support are at 101.30 and 100.70.
This article was written by Gina Constantin.
