The British pound and Australian dollar could both see heavy volatility this coming week, despite the fact that both the Bank of England and Reserve Bank of Australia are expected to leave rates unchanged. Meanwhile, one of the Canadian dollar’s most market-moving reports - employment figures - will hit the wires on Thursday, leaving the currency prone to choppy price action.
[B]• Canadian Ivey PMI (MAR) – April 6[/B]
Canada’s Ivey Purchasing Managers’ Index (PMI) is forecasted to have risen to 46.9 in March from 45.2, which would mark the second straight increase. However, since this gauge of conditions in the manufacturing sector is expected to remain below 50, the index will reflect a further contraction in business activity for the fifth straight month, albeit at a slower pace. Overall, this PMI release is likely to add to evidence that the decline in oil prices has taken its toll on Canadian economic growth, but the index may only impact the Canadian dollar if it rises back above 50, or if it surprisingly dives toward January’s record low of 36.1.
[B]• Reserve Bank of Australian (RBA) Rate Decision – April 7[/B]
The Reserve Bank of Australia is anticipated to leave their cash rate target unchanged for the second straight month at 3.25 percent at 00:30 ET on Tuesday, but the Australian dollar will only respond to a surprise rate cut or a biased monetary policy statement. After the central bank’s last meeting, RBA Governor Alan Bollard said, “Together with the substantial fiscal initiatives, the cumulative decline in interest rates will provide significant support to domestic demand over the period ahead,” suggesting that further reductions were unnecessary. Since then, though, data has shown that Q4 GDP unexpectedly fell negative by 0.5 percent, the first decline in eight years. As a result, it will be important to look to Bollard’s statement, as signs that the RBA may consider cutting the cash rate target again eventually could weigh on the Australian dollar, while indications of a broadly neutral bias could support the currency.
[B]• Federal Open Market Committee (FOMC) Meeting Minutes (MAR 17-18) – April 8[/B]
In March, the Federal Open Market Committee (FOMC) left the fed funds target range at 0.0 percent - 0.25 percent but the big surprise was that they officially announced quantitative easing efforts. Since this information has already been revealed, the release of the minute may not be very market-moving, but they will likely add to indications that the FOMC will leave the target unchanged throughout much of 2009 and that they will continue to use the central bank’s balance sheet in an effort to improve credit conditions. The one thing that may capture the market’s attention is the FOMC’s long-run projections for growth, unemployment, and inflation as revisions that indicate that the outlook appears to be even worse than previously anticipated could hurt risk appetite throughout the financial markets, and thus lift safe-haven currencies like the US dollar. However, if the revisions go unchanged, traders may shrug-off this once critical release.
[B]• Canadian Net Employment Change (MAR) – April 9[/B]
At 7:00 ET, the Canadian net employment change is forecasted to have fallen by 57,500 during March, marking the fifth straight month of job losses. Furthermore, the unemployment rate is anticipated to have risen to match January 2002 high of 8.8 percent from 7.7 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to weigh on the currency and an unexpected positive result likely to push it higher.
[B]• Bank of England Rate Decision – April 9[/B]
For the first time since the summer of 2008, the Bank of England is expected to leave rates unchanged. Indeed, both Credit Suisse overnight index swaps and a Bloomberg News poll of economists reflect forecasts that the BOE will leave the Bank Rate at an all-time low of 0.50 percent at 7:00 ET on Thursday. A look at their March 5 policy statement shows that the BOE’s Monetary Policy Committee (MPC) expects both growth and inflation to fall lower in coming months and also announced a new 75 billion pound asset purchase program, which included the buying of medium and long-term gilts. Ultimately, how the British pound responds will likely depend on two factors: whether or not the BOE asserts that they want to avoid cutting the Bank Rate to zero, and whether or not they indicate that they want to expand their quantitative easing (QE) efforts. Signs that the BOE is open to reducing rates further or signs that they will increase their gilt purchases could weigh heavily on the British pound, especially against the euro, while the opposite (steady rates, no QE expansion) could provide a boost to the UK’s currency.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
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