US, Eurozone and Chinese Data to be Paramount in the Week Ahead
The upcoming forex trading week will be mostly about CPI and PMI readings, plus a few speeches from central bank officials. Volatility is likely to stay subdued compared to the previous trading weeks, although news reports could still push risk sentiment around.
On Monday, BOC Governor Stephen Poloz and RBA Governor Glenn Stevens are set to give testimonies. Recall that the Bank of Canada decided to sit on its hands in the latest rate statement, citing that there are plenty of developments in the Canadian economy and that further easing might not be necessary for a while. Meanwhile, the Reserve Bank of Australia also recently decided to stay put but policymakers still mentioned that the economy could operate under a degree of spare capacity for quite some time.
The RBA monetary policy meeting minutes up for release on Tuesday should shed more light on the policymakers’ biases, and this will be taken in light of the latest jobs report. For the month of March, Australia managed to chalk up a stronger than expected employment change figure of 37.7K and an improvement in the jobless rate to 6.1%. Positive remarks could remind traders that a few green shoots are also being seen in Australia, which might help support the Aussie.
On Wednesday, the Aussie might still stay in focus with Australia’s quarterly CPI figures lined up. Stronger inflation compared to the previous 0.2% quarterly uptick could also buoy the Aussie while weak readings could force it to return its recent gains.
Later on, the BOE will print its monetary policy meetings, which should contain more clues on why the central bank decided to keep interest rates and asset purchases unchanged. Any shift from their rhetoric to a more downbeat outlook could lead to more weakness for the pound, which has previously been weighed down by bleak economic figures.
The main focus on Thursday are the PMI readings from China and the euro zone. Last week, China printed weaker than expected data for March, indicating another potential slowdown in the world’s second largest economy and possibly in the global economy as well. The HSBC flash manufacturing PMI for April should provide a preview of how China has fared recently and this could have a strong impact on risk sentiment, with strong figures likely to push higher-yielding currencies up and weak data likely to spark risk aversion.
As for the euro zone, the region has been seeing signs of improvement lately, as Governor Draghi has noted. Further progress in the manufacturing and services sectors of Germany and France could reinforce this view, which might allow the shared currency to extend its rallies. UK retail sales are also up for release on the same day and this should be crucial in determining whether or not the downturn in inflation is spurring consumer spending or not.
There’s not much in the way of US data for this trading week, although there are a few potential market-movers for the dollar pairs towards the end. Apart from Thursday’s initial jobless claims release, the flash manufacturing PMI and the durable goods orders are also lined up.
Bear in mind that the US has been printing dismal reports lately, starting from the March NFP reading to the building permits and housing starts figures released last week. Another round of disappointing data could further undermine the Fed’s hawkish bias, leading traders to lower expectations of seeing a rate hike for this year. If so, the US dollar could stand to lose further ground to its forex counterparts.