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.
This article was written by Gina Constantin.
