Fed and BOE Releases Set to Drive the Financial Markets in the Week Ahead
Risk sentiment has mostly been responsible for the latest action in the forex market, as the pickup in commodity prices have supported higher-yielding currencies. Economic data also took center stage in the absence of major central bank events for the most part of the week.
The upcoming trading week should focus on more or less the same themes, especially since most of the central banks have already announced their policy decisions. Leading the pack are the Fed and the BOE, which have both maintained relatively hawkish biases in the midst of weak inflationary pressures. The RBA and BOC have cut interest rates a few days back, leading to a bit of dovishness, while the RBNZ has indicated a shift to a more cautious tone.
The BOJ has yet to make its policy statement this week, although no actual changes are expected for now. Data from Japan has come in mostly below expectations, particularly when it comes to inflation and spending, yet BOJ policymakers have maintained that additional easing isn’t necessary for now.
The BOE is set to print the minutes of its latest monetary policy meeting, but it seems that traders already got a good preview during last week’s Inflation Report hearings. During this event, Carney acknowledged the weakness in inflation and said that they could be open to cut rates if this persists. For now though, he reiterated that their next move is still likely to be a rate hike since the drop in price levels actually supported domestic growth. He even upgraded growth forecasts for 2016 and 2017.
The FOMC meeting minutes are also up for release this week and this could be crucial in setting the tone for dollar trends. Their latest announcement has been interpreted as a hawkish one since they completely dropped the phrase on keeping rates low for a “considerable time” and added that they “can be patient” in considering policy normalization. Analysts are pricing in a rate hike from the Fed in June, but the FOMC minutes might set a clearer time line for tightening.
Also due in the week are the RBA meeting minutes, which would shed more light on why the central bank cut rates in their latest statement. Governor Stevens already explained that this was partly spurred by weak hiring, as seen in the latest jobs release, but other policymakers might still weigh in on the weak spots in the Australian economy.
Consumer spending data is also set to drive forex pairs around, with New Zealand getting the ball rolling in the early Asian trading session on Monday. Quarterly headline retail sales might see another strong gain while the core figure could also post a decent increase, both of which might keep the New Zealand dollar supported.
Later on, the UK will also show its retail sales figures and possibly add evidence to Carney’s claims that domestic demand is robust. He has noted that the drop in consumer prices actually boosted real incomes and allowed households to stretch their budgets, citing that he hasn’t seen any reports that show the negative impact of weak inflation just yet.
Canada is also set to print its latest retail sales readings and might see a bit of a downturn in both headline and core figures. If so, talks of another BOC rate cut might weigh on the Loonie towards the end of the trading week.
Other main events include Japan’s GDP release on Monday, which could indicate if the economy has slumped deeper in recession or has managed to post positive growth. The New Zealand global dairy auction mid-week should also generate a lot of interest, as market watchers are keen to see if the rebound in dairy prices was sustained. Towards the end of the week, euro zone PMIs should add volatility to euro pairs.