FX Week Ahead Overview:
- The Reserve Bank of Australia will continue its hawkish posturing without raising rates as it appears to be staying on hold until after the Australian federal elections in May.
- Meanwhile, the Bank of Canada is widely anticipated to start its rate hike cycle with a 25-bps move this Wednesday – the first of several rate hikes this year.
- The February US nonfarm payrolls report will showcase further resilience of the US labor market as COVID-19 omicron variant infection rates continue to fall.
For the full week ahead, please visit the DailyFX Economic Calendar.
03/01 TUESDAY | 03:30 GMT | AUD Reserve Bank of Australia Rate Decision
The Reserve Bank of Australia is increasingly likely to raise interest rates in the first half of the year after several months of better than expected economic data. The current Australian unemployment rate is 4.2%, already-matching the RBA’s 2022 year-end forecast. But there is a potential hurdle that is delaying action by the RBA sooner: Australian federal elections have to be held by May at the latest. Once the elections pass, the RBA will be freer to act. Hawkish commentary by the RBA – instead of a rate hike – is likely to keep the Australian Dollar supported.
03/02 WEDNESDAY | 10:00 GMT | EUR Inflation Rate (HICP) (FEB)
According to a Bloomberg News survey, the preliminaryFebruary Euroarea inflation rate (HICP) is due in at +0.4% m/m from +0.3% m/m and at +5.4% y/y from +5.1%.The core inflation rate (ex-energy and food) due in at +2.5% y/y from +2.3%. While these type of readings may otherwise stir speculation that the ECB would be prone to accelerating its rate hike timeline, against the backdrop of a potential banking sector crisis thanks to the sanctions on Russia, the ECB won’t be moving forward with hikes anytime soon. The Euro may not find a tailwind on the back of higher inflation data for the foreseeable future.
03/02 WEDNESDAY | 15:00 GMT | CAD Bank of Canada Rate Decision
BOC policymakers continue to downplay the impact of omicron on the path of interest rates; if anything, omicron has prolonged supply chain issues that are pushing inflation rates higher. And with oil prices continuing to surge, the Canadian economy is expected to regain its footing rather quickly. The odds of a 25-bps rate hike in March are 108% (100% chance of a 25-bps rate hike plus an 8% chance of a 50-bps rate hike). The next 25-bps hike is most likely to arrive in April (100% chance of a 25-bps rate hike and a 14% chance of a 50-bps rate hike).
03/03 THURSDAY | 15:00 GMT | USD ISM Non-Manufacturing PMI (FEB)
As COVID-19 infection rates have fallen in recent weeks, the US economy has opened up more, leading to consumers starting to shift more of their consumption from goods to services. While that trend will need to continue for several months in order for supply chain issues to ease, the fact of the matter is that two-thirds of all jobs in the US are service-related. Due in at 61 form 59.9, the February US ISM non-manufacturing PMI should help reinforce the near-term path of expected Fed rate hikes.
03/04 FRIDAY | 13:30 GMT | USD Nonfarm Payrolls & Unemployment Rate (FEB)
Diminished rates of COVID-19 omicron variant infections, have been a tailwind for the US labor market. US jobless claims have subsided over the past several weeks following their early-January bump. Surveys point to gains of +438K from +467K and for the US unemployment rate to fall to 3.9% from 4.0%. Nevertheless, the February US NFP report is unlikely to change the Fed’s course towards a rate hike in March. Coupled with a resolution to the Russia-Ukraine conflict, the US Dollar may quickly fall out of favor – even if the US jobs report beats expectations.
Atlanta Fed Jobs Growth Calculator (February 2022) (Chart 1)
The US economy continues to make progress towards ‘full employment’ as experienced pre-pandemic. According to the Atlanta Fed Jobs Growth Calculator, the US economy needs +378K jobs growth per month over the next 12-months in order to return to the pre-pandemic US labor market of a 3.5% unemployment rate (U3) with a 63.4% labor force participation rate.
— Written by Christopher Vecchio, CFA, Senior Strategist
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