Forex Major Currencies Outlook (Mar 15 – Mar 19)

USD 

CPI for February came in at 1.7% y/y as expected on the back of the rising oil prices. The rise in food prices also contributed to the jump in headline number. Core CPI surprised to the downside and came in at 1.3% y/y vs 1.4% as expected and as was in January. The rise in headline inflation can be attributed to one-off factors and still does not represent sustainable inflationary conditions. 

Senate has passed the $1.9 trillion stimulus package. The bill will go to the House for approval on Tuesday before being sent to President Biden for signing. The long-anticipated fiscal stimulus is likely to bolster consumer spending, therefore leading to higher inflation expectations. On the back of the stimulus OECD has more than doubled its forecast for US 2021 GDP to 6.5% from 3.2% in December. 

This week we will have consumption data as well as Fed meeting. No changes in rate and policy are expected. The rise in inflation that is coming in the following months will be characterized as transitory and will not warrant any moves. A dot plot containing economic projections will be published at the meeting. 

Important news for USD: 

Tuesday:

• Retail Sales

Wednesday:

• Fed Interest Rate Decision 

EUR 

Final Q4 GDP reading came in at -0.7% q/q, same as preliminary reading and -4.9% y/y vs -5.1% y/y as preliminary reported. Household consumption fell by -3% q/q while government spending rose 0.4% q/q. Due to strict lockdowns across the continent Q1 GDP will dance on the edge of a double-dip, however OECD has raised its 2021 GDP forecast for the Eurozone to 3.9% from 3.6% in December. 

ECB has left key rates unchanged as widely expected. They are now committed to make PEPP purchases at a significantly higher rate over the next quarter. Reports state that purchases will be between €60 and €100bn This is their response to the unwelcome rise in bond yields. They are also prepared to look through the rise in inflation as they see it as only temporary and expect it to drop back next year. ECB President Lagarde stated that risks have become balanced but in the near-term downside risks are higher. GDP for 2021 has been revised up to 4% from 3.9% in December with inflation also being revised up to 1.5% from 1% in December. 

GBP 

January GDP came in at -2.9% m/m vs -4.9% m/m as expected. A drop not big as expected which will keep the pound underpinned, however yearly industrial and manufacturing production numbers that were improving every month since May 2020 turned the other way and showed a bigger decline compared to December reading. The economy is now around 9% lower than pre-pandemic. BOE Governor Bailey stated that they are looking into negative interest rates as a monetary policy tool, however they are not inclined to implement them. He added that the bank needs more proof that current rise in inflation can be sustained for a longer period of time. Schools and colleges have reopened in the UK as a part of the first phase in country’s reopening. 

This week we will have BOE meeting. No changes in rate or policy are expected, however assessment of economic situation will be closely scrutinized. With government spending rising there may be talks of putting the cap on the government bond yields. 

Important news for GBP: 

Thursday:

• BOE Interest Rate Decision 

AUD 

Chinese trade balance data for the period of January-February came in at $103.25bn with exports coming in at 60.6% and imports 22.2%. Main export products were electric appliances, vehicles and computers. Inflation data came in at -0.2% y/y, a tick up from -0.3% y/y. Pork prices keep declining and last year’s high base caused inflation to be in the negative for the second consecutive month. PPI prices, on the other hand, jumped 1.7% y/y due to the rise in commodity prices pushing it to the highest level in two years. 

This week we will have employment data from Australia as well as consumption and industrial production data from China. 

Important news for AUD: 

Monday:

• Retail Sales (China)
• Industrial Production (China)

Thursday:

• Employment Change
• Unemployment Rate 

NZD 

Preliminary business confidence in March dropped to 0 from 7 in February. Activity outlook also showed a decline to 17.4 from 21.3 the previous month. NZDUSD started the week on the back foot due to the USD strength caused by rising yields. The pair turned upwards mid-week and recuperated losses only to finish the week lower than were it started. 

This week we will have Q4 GDP reading. 

Important news for NZD: 

Wednesday:

• GDP 

CAD 

BOC has left overnight rate unchanged at 0.25% as widely expected. There were no talks about adjusting the monetary policy so the current QE pace of “at least” CAD4bn per week remains. QE will continue “until the recovery is well underway”. BOC members stated that "economy is proving to be more resilient than anticipated" with improved foreign and commodity demand brightening the picture. Labour market is still “a long way from recovery”. Additionally, members argue that although inflation will rise in the coming months it is not likely that the level of 2% sustainable inflation will be reached any time before 2023. We may expect greater clarification at April’s meeting. 

Employment report in February smashed expectations by coming in at 259.2k vs 75k as expected. As a reminder Canada lost 212.8k jobs in January. The unemployment rate fell astonishingly to 8.2% from 9.4% in January. This was all achieved with no change in the participation rate, which came in at 64.7%, which adds to the overall strength of the report. Full-time employment came in at 88.2k while part-time employment came in at 171k. Another strong reading from Canada that may push BOC to lower their QE purchases at April’s meeting. 

This week we will have inflation and consumption data. 

Important news for CAD: 

Wednesday:

• CPI

Friday:

• Retail Sales 

JPY 

Final Q4 GDP reading was lowered to 2.8% q/q from 3% q/q as preliminary reported due to a drop in business investment. Wages in January fell -0.8% m/m and although expectations were for a bigger drop this is now tenth consecutive month of dropping wages. Household spending has plunged -6.1% m/m influenced by a deadly combination of falling wages and state of emergency. BOJ officials want to see freer fluctuations in 10y JGB yields within their set range of 20bp on either side. BOJ has set yields on 10y JGBs at 0%. The impact of their decision could be JPY positive. 

This week we will have national inflation data for February as well as BOJ meeting. No changes in rate are expected, however talks about JGB and ETF purchases will draw a lot of attention. 

Important news for JPY: 

Friday:

• BOJ Interest Rate Decision
• CPI 

CHF 

SNB total sight deposits for the week ending March 5 came in at CHF703.1bn vs CHF704.1bn the previous week. SNB can sit back and relax as market is doing their job with EURCHF hovering around the 1.11 level. The seasonally adjusted unemployment rate for February ticked up to 3.6% from 3.5% in January while the headline unemployment rate dropped to 3.6% from 3.7% in January leaving this a mixed reading.

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_{Please note that this analysis should not be used as investing advice as it is only an overview of the economic events influencing the markets. Please remember that our accounts have Market Execution. Please note how Execution works during high impact news and other times of low liquidity.}