Market Briefing: Central banks in focus

CalendarMarch 18, 2024
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  • Waiting game. Ahead of this week's key events FX markets consolidated on Friday. USD index tracked sideways. AUD near its 200-day moving average.

  • Event radar. BoJ, RBA, US Fed, & BoE decisions due this week. China data released today, while NZ GDP & AU jobs due on Thursday.

  • Central banks. Further bursts of volatility probable. Will the BoJ hike rates for the first time since 2007? Will the US Fed continue to forecast 3 cuts in 2024?

With one eye on this week’s central bank meetings global markets largely consolidated on Friday. US bond yields ticked up slightly (the 2yr rate rose ~3bps to 4.73%), while the major equity indices slipped back. The S&P500 declined 0.7%. As a result, the S&P500 recorded its second straight, albeit modest, weekly fall. This is the first time the US stockmarket has declined in consecutive weeks since late-October, although even after its dip it is still historically high. In FX, the USD tracked sideways. Last week’s upward repricing in US interest rates following positive inflation data has been USD supportive. EUR is sub $1.09, GBP is around ~$1.2735, the AUD is hugging its 200-day moving average (~$0.6560), and ahead of tomorrow’s Bank of Japan meeting USD/JPY is at ~149.

Further bursts of volatility appear probable near-term. In addition to the BoJ (Tues, no set time) and RBA (Tues 2:30pm AEDT), the US Fed hands down its decision (Thurs 5am AEDT), as does the Bank of England (Thurs 11pm AEDT). On top of that the China data batch is due today (1pm AEDT). In terms of China, we think the data should show activity stabilised rather than deteriorated in early 2024. Signs momentum is turning the corner could support sentiment. But in terms of the major FX events the BoJ and US Fed will be center stage.

With respect to the BoJ, after years of ultra loose policy, the time for a shift is here. The Japanese Trade Union Confederation’s first tally of this year’s wage rises, released last Friday, found an overall increase of ~5.3%. This is the highest since 1991. In our view, the wage and inflation pulse not only back a policy change this week (or at the latest next month) but a faster rate hike path thereafter. Traders are assigning a ~50% chance of a small rate rise on Tuesday. Hence, the way things land will generate a jolt. A BoJ hike, which would be the first since 2007, may see the undervalued JPY lift. Given it is the 2nd most traded pair a lower USD/JPY would cascade across FX.

For the US Fed, rates should remain on hold with its updated guidance and projections the focal points. Stronger US inflation in early 2024 has seen some assume the Fed could forecast fewer rate cuts this year and next. It is likely to be a close call, but we think modest upward revisions to near-term inflation may not be enough for the Fed to signal less easing this year. While Chair Powell is likely to stress there is little tolerance to more surprises, things were assumed to be bumpy, and that slower growth and more labour market slack still suggests inflation should trend down over the medium-term. This type of rhetoric and no change in the Fed’s 2024 projections could disappoint ‘hawkish’ expectations and see the USD soften.


Global event radar: China Activity Data (Today), RBA Meeting (Tues), BoJ Meeting (Tues), UK CPI (Weds), US Fed Meeting & Chair Powell Speaks (Thurs), Eurozone PMIs (Thurs), BoE Meeting (Thurs), US PCE Deflator (29th Mar), China PMIs (31st Mar), Eurozone CPI (3rd Apr), US Jobs Report (5th Apr).


AUD corner

AUD consolidated near its 200-day moving average (~$0.6560) at the end of last week, in line with the broader USD trends as markets await this week’s central bank meetings (see above), and the mixed performance across commodities. While iron ore remains on the backfoot and has fallen below US$100/tonne for the first time since August, copper’s positive run has continued. The copper price is near a ~1-year high. Copper is a widely used industrial metal, and its jump mirrors the improvement in a range of forward indicators we track, suggesting global industrial activity should relatively improve over coming months. The China data batch for Jan/Feb is due today (1pm AEDT). Indications activity is stabilising could, in our view, be supportive for risk sentiment and growth linked assets such as industrial metals and cyclical currencies like the AUD.

Locally, the RBA meets (Tues), and the February jobs report is due (Thurs) this week. The RBA is widely expected to keep rates steady. We also see the RBA retaining its very mild tightening bias by reiterating “a further increase in interest rates cannot be ruled out” to maintain some optionality if inflation surprises. Data wise, after two weak prints, jobs growth is forecast to have bounced back. A deep dive indicates recent weakness may have been because of seasonal changes in hiring patterns. There was a larger than usual number of people deemed to be unemployed but set to start a job soon in last month’s figures. Some statistical payback in February appears likely with risks tilted to job gains exceeding consensus estimates (mkt +40,000) and the unemployment rate falling to 4%.

If realised, these types of domestic outcomes could give the AUD some renewed support (particularly on the crosses, see below) as RBA rate cut pricing is watered down. This would be compounded if we are right, and the USD loses some ground due to: (i) the BoJ coming through and raising interest rates for the first time since 2007. This in turn could see USD/JPY fall back; and (ii) our expectation the US Fed fails to crystallise the more ‘hawkish’ thinking that has crept in following recent upside US inflation surprises by reiterating policy ‘recalibration’ later this year is still on the table with ~3 rate cuts over H2 still its central case.

On the crosses, when combined with the prospect NZ Q4 GDP (Thurs) shows the economy stalled or even contracted again, a positive Australian labour force report and the RBA holding the line may see AUD/NZD’s recent upswing extend. We believe AUD/GBP might also lift if the Australian/Chinese data improves, and the vote split among the BoE monetary policy committee shifts to show little appetite for further hikes and/or more votes for cuts given weaker UK growth, inflation, and wage data.

AUD event radar: China Activity Data (Today), RBA Meeting (Tues), BoJ Meeting (Tues), UK CPI (Weds), US Fed Meeting & Chair Powell Speaks (Thurs), NZ GDP (Thurs), AU Jobs Report (Thurs), Eurozone PMIs (Thurs), BoE Meeting (Thurs), AU CPI (27th Mar), AU Retail Sales (28th Mar), US PCE Deflator (29th Mar), China PMIs (31st Mar), Eurozone CPI (3rd Apr), US Jobs Report (5th Apr).

AUD levels to watch (support / resistance): 0.6510, 0.6530 / 0.6620, 0.6660


SGD corner

USD/SGD has edged up over the past week, in line with the firmer USD as the mix of a positive US inflation surprise and higher US bond yields washed through. At ~1.3375 USD/SGD is near where it was on 7 March. On the crosses, EUR/SGD has consolidated between its 100-day (~1.4553) and 200-day (~1.4594) moving averages, while SGD/JPY has clawed back a bit of ground (now ~111.44) ahead of tomorrow’s BoJ meeting.

As mentioned above, the global focus this week will be on today’s China data batch, tomorrow’s BoJ decision, and Thursday mornings US Fed announcement. As discussed, we believe economic conditions in Japan support the case for the BoJ to begin to step away from its very loose settings tomorrow (or at the latest at next month’s meeting). A ‘hawkish’ result could give the JPY a boost, dragging on SGD/JPY. In the US, we think if the Fed keeps its 2024 interest rate projections unchanged and Chair Powell continues to flag rate cuts later this year are anticipated the USD (and USD/SGD) could ease.

SGD event radar: China Activity Data (Today), BoJ Meeting (Tues), US Fed Meeting & Chair Powell Speaks (Thurs), Eurozone PMIs (Thurs), BoE Meeting (Thurs), Singapore CPI (25th Mar), US PCE Deflator (29th Mar), China PMIs (31st Mar), Eurozone CPI (3rd Apr), US Jobs Report (5th Apr).

SGD levels to watch (support / resistance): 1.3300, 1.3330 / 1.3406, 1.3450


FX Moves


Peter Dragicevich

Currency Strategist - APAC

peter.dragicevich@corpay.com


Upcoming Events

MONDAY (18th March)

CNY Retail Sales (Feb) (1pm)

CNY Industrial Production (Feb) (1pm)

CNY Fixed Asset Investment (Feb) (1pm)

EUR CPI Inflation (Feb F) (9pm)

TUESDAY (19th March)

USD NAHB Housing Market Index (Mar) (1am)

JPY BoJ Decision (no set time)

AUD RBA Decision (2:30pm)

EUR ECB’s Guindos Speaks (7:30pm)

EUR Germany ZEW Survey (Mar) (9pm)

EUR Labour Costs (Q4) (9pm)

CAD CPI Inflation (Feb) (11:30pm)

USD Housing Starts/Building Permits (Feb) (11:30pm)

WEDNESDAY (20th March)

NZD Consumer Confidence (Q1) (7am)

CNY Loan Prime Rate (1yr/5yr) (12:15pm)

GBP CPI Inflation (Feb) (6pm)

EUR ECB President Lagarde Speaks (7:45pm)

EUR ECB’s Lane Speaks (8:30pm)

EUR ECB’s De Cos Speaks (11pm)

THURSDAY (21st March)

EUR ECB’s Schnabel Speaks (12:45am)

EUR ECB’s Holzmann Speaks (2:30am)

EUR ECB’s Nagel Speaks (3:45am)

CAD BoC Meeting Minutes (4:30am)

USD FOMC Decision (5am)

USD Fed Chair Powell Speaks (5:30am)

NZD GDP (Q4) (8:45am)

AUD Jobs Report (Feb) (11:30am)

EUR France PMIs (Mar P) (7:15pm)

EUR Germany PMIs (Mar P) (7:30pm)

EUR Eurozone PMIs (Mar P) (8pm)

EUR ECB’s Nagel Speaks (8pm)

GBP PMIs (Mar P) (8:30pm)

EUR ECB’s Holzmann Speaks (9pm)

GBP BoE Decision (11pm)

USD Philly Fed Outlook (Mar) (11:30pm)

USD Initial Jobless Claims (11:30pm)

FRIDAY (22nd March)

USD PMIs (Mar P) (12:45am)

CAD BoC’s Gravelle Speaks (12:50am)

USD Leading Index (Feb) (1am)

JPY CPI Inflation (Feb) (10:30am)

AUD RBA Financial Stability Review (11:30am)

GBP Retail Sales (Feb) (6pm)

EUR Germany IFO (Mar) (8pm)

CAD Retail Sales (Jan) (11:30pm)

SATURDAY (23rd March)

EUR ECB’s Nagel Speaks (12am)

USD Fed Chair Powell Speaks (12am)

USD Fed’s Barr Speaks (3am)

EUR ECB’s Lane Speaks (4am)

USD Fed’s Bostic Speaks (7am)

*Note, all times/dates provided are AEDT

Author

Peter Dragicevich

Peter Dragicevich

Currency Strategist - APAC

Peter analyses and forecasts global macroeconomic trends to draw out possible implications for interest rates, commodity pricing, and the FX markets for Australia and across Asia.

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