Traders are in for a busy week as we anticipate THREE central bank announcements plus the release of Uncle Sam’s latest labor market data.
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched potential market movers this week:
Major Economic Events:
RBA’s policy decision (Mar 7, 3:30 am GMT) – Slower growth and inflation? Who she? The Reserve Bank of Australia (RBA) is expected to deliver its TENTH consecutive interest rate hike, this time by 25 basis points to a decade-high of 3.6% on Tuesday.
In February’s statement RBA noted that further rate hikes “will be needed over the months ahead.” If the same sentiment shows up on the March statement, then markets could price in further rate hikes in April and May.
Powell’s testimony in DC (Mar 7, 3:00 pm GMT) – Now that markets are buying the higher-for-longer narrative, markets will look at Powell’s semi-annual monetary policy report to for signs of even more hawkishness.
Manage your expectations though! While the event will likely get a lot of attention, the Fed head honcho will unlikely commit to a definite policy path especially ahead of the U.S. labor and inflation data releases.
BOC’s policy statement (Mar 8, 3:00 pm GMT) – At its January meeting, Bank of Canada (BOC) already noted that it expects to “hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.” Since then, Canada’s inflation missed expectations while GDP showed signs of stalling.
This is why markets see the BOC holding its interest rates steady at 4.5% this week after raising them by a record pace of 425 basis points in the last 10 months.
BOJ’s policy update (Mar 10, Asian session) – He’s KuroDONE! Analysts don’t expect Governor Kuroda’s last policy statement to contain bombshells. Bank of Japan’s (BOJ) ultra-loose policies including interest rates and yield curve controls are expected to remain untouched ahead of the new BOJ Governor and Deputy Governor appointments.
NFP-related headlines (Mar. 10, 1:30 pm GMT) – Uncle Sam’s labor market is expected to moderate after adding a whopping half a million jobs in January. Non-farm payrolls are expected to come in somewhere above the 200K mark while the unemployment rate and average hourly earnings maintain their 3.4% and 0.3% rates respectively.
A persistently low initial jobless claims trend and upside surprises in the business employment indices are leading some analysts to predict more upside for the U.S. labor data this week. On the other hand, we could see downside revisions to last month’s seasonal adjustments or markets could choose to focus on the lack of momentum in full-time employment.
This week’s leading indicators could narrow down NFP speculations. The ADP report is seen printing another 195K gain while the JOLTS job openings slow down from 11.01M to 10.61M on Wednesday. Thursday’s Challenger job cuts and initial jobless claims can also hint of potential upside surprises to the NFP numbers.
Another strong NFP report will give the Fed more room to raise its interest rates even higher or keep them in high levels for even longer than what markets are already pricing in.
Forex Setup of the Week: AUD/USD
AUD/USD Daily Forex Chart by TradingView
With the RBA and Powell under the spotlight and the U.S. about to print its labor market data, I’m taking a closer look at AUD/USD’s longer-term trends.
The pair is having trouble making new lows below the .6700 psychological handle, which suggests that there are enough buyers to stop the extension of AUD/USD’s downtrend.
More importantly, the 100 SMA looks ready to cross above the 200 SMA on the daily time frame. As you can see, the last four SMA crossovers have resulted in notable trend changes.Are we looking at a reversal in the making?
This week’s headlines can make or break a bullish momentum for AUD/USD.
If markets focus on risk-taking and downplay the Fed’s next rate hikes, then AUD/USD could bounce from its current levels and retest previous areas of interest like .6850 or .6900.
But if expectations of strong U.S. labor market numbers or even more rate hikes from the Fed dictate this week’s intraweek trends, then AUD/USD could breach its .6700 support and drop to the .6600 or .6550 previous support levels.