Weekly Market Review – 03/05/2015

U.K. Elections and U.S. Unemployment Data on Focus this Coming Week!

Market themes for the upcoming trading week could focus on jobs data and economic events from Australia. After all, the US non-farm payrolls report is set for release on Friday, along with the Canadian jobs report. The US NFP reading could have a strong impact on major pairs, as this would indicate whether the recent slump was temporary or not.

Before that though, the RBA is set to announce its monetary statement on Tuesday and most forex participants are expecting to hear downbeat remarks. In his recent testimony, RBA Governor Stevens hinted that they might be ready to cut rates if necessary as he emphasized that monetary policy should stay accommodative.

New Zealand is set to get the ball rolling with its quarterly employment change release in the early Asian session on Wednesday. Strong data could allow the Kiwi to regain ground, as this might be enough to reassure market participants that no further rate cuts are necessary. However, weaker than expected data could lead to another leg lower for Kiwi pairs.

Also lined up around that time is New Zealand’s bi-weekly dairy auction. Prices have been falling in the past three instances and another week of declines could indicate that the dairy industry is in a slump.

Later on, Australia is set to print its retail sales report and possibly show an uptick in spending. Weaker than expected readings could mean further declines for the Australian dollar while strong results could allow the Aussie to recover. The US ADP non-farm employment change report is also up for release mid-week and this could provide clues on how the NFP release might fare.

On Thursday, Australia will release its monthly employment change report. Leading indicators for employment have been lagging, which suggests the possibility of a downside surprise.  Then, on Friday, markets will focus on the US NFP reading to see if the Fed might be able to return to their upbeat assessment of growth and hiring soon enough.

Bear in mind that the recent FOMC statement indicated that the downturn in the US economy is just due to temporary factors. However, another month’s worth of bleak jobs figures might convince traders that the Fed will wait much longer before hiking interest rates. This could lead to significant losses for the dollar and a potential return in risk appetite, as the prolonged period of low interest rates could continue to support demand.

Other event risks lined up for the week include the UK parliamentary elections. Early polls show that there is no clear majority, opening up the possibility of a coalition government. This stalemate could make it more difficult for the government to pass laws, which might delay any decisions needed to support economic growth. Uncertainty could weigh on pound trading for the rest of the week, unless any party is able to secure a majority.

Data from China could also have a strong impact on forex price action throughout the week. On Monday, the world’s second largest economy will release its HSBC final manufacturing PMI reading, which initially fell to 49.2 and indicated industry contraction. A positive revision could boost risk sentiment and the Australian dollar, as the country is China’s number one trade partner.

Later on, China is also set to print its trade balance and CPI data. Bear in mind that the Chinese central bank recently eased monetary policy in an effort to shore up economic growth, but it seems that an economic slowdown cannot be avoided. More downbeat readings could reinforce this view and force higher-yielding currencies to return their gains.