Forex Major Currencies Outlook (Mar 14 – Mar 18)

USD 

Inflation in February has set a new record high by coming in at 7.9% y/y. The good news is that it did not surpass expectations. The bad news is that monthly figure came in at 0.8% m/m indicating that new record high will be set in the coming months. Talks about inflation rising over 9% y/y in the near-term are mounting. Core reading came in at 6.4% y/y vs 6% y/y in January with a 0.5% m/m increase. The 10y breakeven, which represents the difference between the nominal yield and the yield of the inflation-protected security, reached a new record high of around 2.96% on March 8. Yield on 10y has returned above the 2% level. 

This week we will have consumption data as well as the big Fed meeting. Chairman Powell already announced that Fed will raise interest rate by 25bp. This will mark the beginning of a rate hike cycle and the first rate hike since December of 2018. We will also get new dot plot projections. 

Important news for USD: 

Wednesday:

• Retail Sales
• Fed Interest Rates Decision

EUR 

ECB has left key rates unchanged at their March meeting as was widely expected. On the QE front, APP purchases will be €30bn in May and €20bn in June before being stopped in Q3. Interest rate hikes will be done gradually and only after APP purchases end which leaves possibility for a rate hike in Q4. At the press conference, ECB President Lagarde stated that that conflict between Russia and Ukraine is the main source of uncertainty. She emphasized lower expected growth and higher expected inflation. According to ECB GDP in 2022 is now seen at 4.2% vs 4.6% in their previous forecast. On the inflation front, HICP for 2022 is now seen at 5.1% vs 3.2% as expected in December. That is over 50% increase in expected inflation! Core inflation for 2022 is expected to be around 2.6%. HICP for 2023 is seen at 2.1%, up from 1.8% as previously seen indicating that ECB expects inflation to slow down. Decision to continue with the tightening despite Russia’s escalation give hawkish feel. 

GBP 

January GDP data showed that the UK had a strong start to 2022. GDP came in at 0.8% m/m vs 0.2% m/m as expected. Services were up 0.8%, production was up 0.7% while construction posted the biggest gain of the three with 1.1%. Goods trade balance posted a record high deficit of -£26.5bn, more than doubling previous month’s deficit of £-12.3bn, on the back of exports tumbling -15.8% y/y while imports surged 21.8% y/y. 

This week we will have employment data as well as BOE meeting. We expect BOE to raise interest rate by 25bp at this meeting. 

Important news for GBP: 

Tuesday:

• Claimant Count Change
• Unemployment Rate

Thursday:

• BOE Interest Rate Decision 

AUD

Chinese trade balance data for the period January-February posted new record surplus in USD terms by coming in at $115.95bn. Exports have risen 16.3% y/y while imports rose 15.5% y/y. Trade volumes of certain export items have declined, however inflation caused overall exports to grow. Inflation data for February showed CPI come in at 0.9% y/y as expected and unchanged from January reading, however there was a 0.6% m/m jump which may cause concern. PPI continued to decline, but at a slower pace than expected. It came in at 8.8% y/y vs 8.7% y/y as expected, down from 9.1% y/y in January. Monthly jump was 0.5%, a rather big monthly rise.

“Two Sessions” meeting, the biggest annual political meeting, saw Chinese GDP penned at 5.5%, which is a 30-year low and set employment as the biggest challenge in 2022. Additionally, China is facing a triple threat of shrinking demand, disrupted supply and weakening expectations, stated by Premier Li. Inflation is expected to be below 3% for the year.

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

Important news for AUD:

Tuesday:

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

Thursday:

• Employment Change
• Unemployment Rate

NZD

Electronic card retail sales, which comprise almost 70% of total retail sales, had a dreadful month and fell -7.8% m/m. Yearly figure was able to make a small gain of 1.1% y/y. NZDUSD had an up and down week finishing almost at the same level where it started it. NZDJPY, on the other hand, had a good week with pair rising around 150 pips since the week started.

This week we will have Q4 GDP data.

Important news for NZD:

Wednesday:

• GDP

CAD

February employment report was a complete success. After January report was heavily distorted due to the Omicron outbreak February employment change came in at 336.6k, more than double the 160k as expected. Of all the jobs added 121.5k were full-time jobs while 215.1k were part-time jobs. The unemployment plunged a full percentage point to 5.5% from 6.5% in January and participation rate increased to 65.4% from 65% the previous month. To top the stellar report, wages rose 3.3%. BOC will be delighted with the report and they will remain on course for additional 25bp rate hike at their next meeting.

This week we will have inflation data.

Important news for CAD:

Wednesday:

• CPI

JPY

Some good data from Japan regarding wages. Nominal wages in January rose 0.9% y/y while real wages rose 0.4% y/y thus posting first positive reading in almost 6 months. Final Q4 GDP reading saw revisions to the downside. GDP came in at 1.1% q/q and 4.6% y/y, down from 1.3% q/q and 5.4% y/y as preliminary reported. Both private consumption and business investment were revised to the downside while contribution of the net external demand remained unchanged. The economy was not as strong as hoped in Q4, but it will serve as a lower base for the Q1 reading. Household spending in January was a bright spot as it rose 6.9% y/y for the first increase since July.

This week we will have BOJ meeting. No changes to rate or monetary policy are expected.

Important news for JPY:

Friday:

• BOJ Interest Rate Decision

CHF

SNB total sight deposits for the week ending March 4 came in at CHF725.7bn vs CHF725.2bn the previous week. EURCHF has reached parity at the start of the week and SNB is well aware that it cannot fight the market now in order to keep the pair at desired level. They have, however, came out and reiterated their readiness to intervene if deemed necessary.

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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.}