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Market Preview – BoC Rate Statement

Market Preview - BoC Rate Statement

The Bank of Canada meets today to decide on interest rates and monetary policy, which will be announced in its Rate Statement at 17:00 server time. The Bank of Canada has held its overnight rate at 0.75% since January, when it cut from 1% amidst a rapid Oil price fall. As oil prices have stabilised somewhat since the start of the year, and the fear of a further collapse in inflation has abated – the BoC is no longer expected to keep cutting rates to prop up the Canadian economy. As such, analysts are expecting a brighter outlook:

  • The Canadian Dollar has been falling strongly for the last few weeks, with USDCAD rising from 1.1920 to 1.2445. This should support exports and the economy, and be seen in a positive light.
  • Oil prices have rebounded dramatically, from lows of around $45 USD/Barrel to around $60 USD currently; this is constructive for both the Canadian economy – which is heavily tied to energy markets – and inflation in general, though CPI is still not showing much strength.
  • The Unemployment Rate fell from 6.9% to 6.8%, though this was on the back of a large fall in total employed of -19,700 – a mixed result.

With economic conditions appearing to have stabilised for the moment, analysts are currently not expecting a change at this meeting. Instead much of the market movement is likely to come from how the bank views the economy and inflation rebounding.

Market Preview – BoJ Monetary Policy Statement

 

Market Preview - BoJ Monetary Policy Statement

The Bank of Japan meets today to update its Monetary Policy Statement, with the statement itself released when-ready rather than at a specific time – traders will want to keep an eye on their news feed in case of any surprise action. The Statement is followed by a press conference with Governor Kuroda, which can affect Yen based pairs even if no changes are made to the bank’s policy at this meeting.

Since the BoJ began its unprecedented stimulus measures, economic conditions were initially looking up before an ill-timed sales tax hike and other factors conspired to put a halt to the recovery. Since the tax increase, inflation moved briefly higher as expected – owing to the once off increase across the board in prices. Growth, however, has dipped back in to negative territory – sparking rumour that the BoJ will eventually need to expand its QQE program in order to reach its intended inflation goals and support growth.

Market Preview - BoJ Monetary Policy Statement

 

Market Preview - BoJ Monetary Policy StatementCurrently, analysts expect no action at the meeting today – however the BoJ has surprised in the past, and when it has done so the market has been caught unaware. In October 2014 the bank expanded its policy measures against forecasts – causing a 1000+ pip move in USDJPY. With the currency having gone nowhere for the last 6 months, and growth and inflation remaining moribund, it may be time to start paying attention to the Bank of Japan meetings again in case they decide to act again to boost the economy.

Market Preview – FOMC Minutes

Market Preview - FOMC Minutes

The FOMC will release the Meeting Minutes from its April 28th to 29th meeting today, with the FOMC making the document available at 21:00 server time. At the April meeting, the Fed did not indicate a rush to raise interest rates and analysts are still expecting that the first rate increase from the zero lower bound will occur later in the year, around September. There are some calling for a June rate hike, however at present the futures market is still pricing nearly zero chance of that occurring. By contrast, at the September and October meetings respectively the chance of a rate rise is currently priced at 24% and 41% respectively, making it a much more likely outcome.

With a rate rise not expected for another few months, the focus from the minutes will be around trying to judge just how far away that decision is. Part of this will come from how confident the FOMC are about a rebound in growth, after 2015’s weak start. The factors that have been weighing on US growth are widely viewed as temporary, such as the rapid strengthening in the US dollar and the trouble around US oil producers; the minutes should give an idea of just how confident the FOMC are of a bounce back – a committee unfazed by the temporary setback could be quite bullish for the US dollar.

There will also be a strong focus on inflation and how the recent recovery in oil prices will shape inflation going forward. If the FOMC still judges the recent low inflation to be transitory, then it should provide no large barrier to tightening. While not likely to be a high impact feature, those interested in economics may be watching to see how the coming tightening will proceed – as the existence of excess reserves complicates the usual process of tightening rates by putting downward pressure on the overnight rate. Currency traders however, will be mainly concerned with how bullish the FOMC are on the US economy, despite weak growth to start the year; volatility will be heightened around the release at 21:00 server time.

Pepperstone Relocates to New Head Office

Pepperstone Group Limited (https://pepperstone.com), Australia’s largest FX provider and one of the world’s fastest growing online foreign exchange/CFD providers has moved its headquarters to the prestigious 530 Collins Street in Melbourne’s CBD. As the former site of the Australian Stock Exchange, the building has been recently refurbished and has a strong commitment to reducing carbon emissions, securing a 5.5 Star NABERS Energy rating. The building is an ideal fit for the new headquarters of the innovative Pepperstone Group as they begin their next phase of global expansion.

Owen Kerr, CEO and co-founder commented ‘We are excited to be located on Collins Street, the heart of Melbourne’s Finance industry. This is going to be the ushering in of a new era for Pepperstone as we use this first-class space to continue our expansion in Australia and to support our customers from across the globe’

Pepperstone Group is an execution-only forex and CFD broker that provides trading solutions sophisticated enough for veteran traders, yet simple enough for the forex novice. Pepperstone assists retail and institutional investors in using forex and other instruments as an asset class and part of their investment objectives. We strive to offer the best trading platforms with access to low-cost pricing, reliable trading infrastructure, fast execution and exceptional client support. Pepperstone offers direct access to multiple destinations of liquidity in the forex markets without the usual burdens of a deal desk, which had previously been unavailable to the retail investor.

Market Preview – BoE Inflation Report

Market Preview - BoE Inflation Report

The Bank of England will release its Inflation Report today at 12:30 server time, accompanied by a Press Conference with Governor Mark Carney. The Inflation Report is released quarterly, and updates the market on how the BoE perceives economic progress over the coming 2 years – in particular the outlook for inflation and growth, and by extension possible moves to rates.

Despite suggesting that the market had it wrong last year, the fall in oil prices saw the BoE fail to raise rates or even come close to doing so through early 2015. The BoE was forced to rapidly downgrade expectations for inflation over the near term, though it was noted that rate increases could still occur with weak inflation, if it was expected to bounce back strongly within the relevant time-frame. 3 months on, with the fall in commodity prices finding a bottom for now and energy prices rebounding by 50% from the lows it may be time for the report to signal a more benign or positive environment.

At the previous release, there was talk of Oil falling to $20 on the back of Saudi production and an ongoing production surge in the US; this appears so far to have been unjustified, and so there is a chance that this report will see the bank calling the bottom for inflation and a recovery in inflation expectations as the fall in prices has filtered through to CPI figures already. The BoE may instead focus on the coming bounce in year on year figures that can be expected once the decline of 50% begins to be replaced by the post-2014 increase of 50% in oil. The fall in oil that began in mid-2014 and ended at the start of 2015 will no longer factor in to the year on year calculations at the end of this year, and may even see a large positive contribution to inflation due to this year’s recovery.

The inflation report will be an important release to watch for guidance on UK monetary policy, and as such volatility is to be expected during the release and the press conference with Mark Carney in the minutes that follow. GBP based pairs and the UK100 will be likely to see the largest increase in trading around this time, but it may carry over to other currencies such as the Euro.

Market Preview – RBNZ Financial Stability Report

Market Preview - RBNZ Financial Stability Report

The Reserve Bank of New Zealand will release its bi-annual Financial Stability Report during roll-over at the end of today’s trading – at 00:00 server time – followed by a speech 5 minutes later by Governor Graeme Wheeler. New Zealand data is often released over the roll-over period, and so traders should be aware that this update could cause price gaps upon release as the market will be briefly closed.

The Stability Report is not always a high impact document, but is a great source of information about the central bank’s thinking on markets and economies domestic and worldwide. The report discusses commodity and house prices, expectations for growth and inflation, asset markets and yield as well as assessments for policy in the financial sector.

Because of the broad scope and extensive discussion found in the report, it may take a while for effects to be felt through the currency markets and for a clear sentiment to emerge. The Governor’s speech may provide more immediate, high impact effects. Even without an immediate impact, the report provides a worthy read and a number of updated graphics such as the ones shown below (Source: RBNZ):

Market Preview - RBNZ Financial Stability Report

Market Preview – Non-Farm Payrolls

Market Preview - Non-Farm Payrolls

Today is Non-Farm Payrolls day in the US session, which means that the week’s high volatility is not quite over yet. At 15:30 server time today, the US Bureau of Labor Statistics releases its Payrolls figure along with the Unemployment Rate – one of the most closely watched announcements on the calendar.

Economists are expecting an improvement in employment conditions, after a very weak reading last month. At the previous announcement, the number of jobs added was only 126,000 – well below the 246,000 expected. At this meaning, analysts are expecting a better result of 228,000 jobs added, with a fall in the Unemployment Rate to 5.4% from the current 5.5% – which would be the lowest level since early 2008.

A good figure, or one better than expected, could see a short term end to the current bout of US Dollar weakness – however if the figure confirms the early year slowdown in the US then there could be a large number of analysts revising how bullish to be on the US economy, exacerbating the move. In either case the trend is still positive, so the Fed will likely not be swayed from tightening yet by another poor result – it would take a sustained bout of weakness for the Fed to re-assess raising interest rates.

Also to be released at the same time will be Canadian Employment data, with the neighbouring countries expected to be at odds when it comes to labour statistics. Analysts are expecting a worsening of conditions across the border, with an expected Employment Change of -4,500 and an increase in the Unemployment Rate to 6.9%. Unemployment has been rising in Canada since the price of oil began plummeting last year; with the large recovery in oil prices prospects may be stabilising.

Market Preview – UK Election

Market Preview - UK Election

 

The UK is gearing up for its national General Election today – which is scheduled to run all day, but we will likely see an announcement well before polling closes due to statistical forecasts and exit polling.

This election is considered to be quite a close one – so the result may not be very well priced in to the market beyond the belief that a hung-parliament is likely. As such, volatility is to be expected across GBP based pairs and the UK100 throughout the day as swings in polling show a changing leadership.

Latest BBC polls show a very close race with votes expected to be:

  • 34% Conservative
  • 33% Labour
  • 13% UKIP
  • 8% Liberal Democrats
  • 5% Green
  • 7% Others

However even with one party coming out on top, traders may be waiting until a coalition can be formed before any clear result is possible. In the meantime, those trading GBP pairs or the UK market should keep an eye out for developments that could materially impact prices.

Market Preview – RBA Rate Statement

Market Preview - RBA Rate Statement

The RBA will meet today to once again decide on interest rates, after holding steady last month. The bank’s Rate Statement and Cash Rate are announced simultaneously at 07:30 server time today. At this meeting, the market is currently expecting a rate cut from 2.25% to 2.00% to counteract weakening in the Australian economy after the mining investment boom.

Since the last meeting Australian data has been fairly positive, however, so there is a case to be made that the RBA could wait to see how the data evolves:

  • The Unemployment Rate fell from 6.3% to 6.1%, and the economy added a large volume of jobs at 37,700.
  • CPI was weak, but surprised slightly to the upside – the quarter on quarter figure showed a 0.2% increase where the market expected 0.1%.
  • Producer Prices (PPI) increased strongly at 0.5% over the quarter, against expectations of only 0.2%.
  • Building approvals showed strong growth yesterday with a 2.8% figure despite expectations of a fall of -1.7%.
  • Commodities including Iron Ore have made a strong recovery in recent days after reaching very low levels.

On the back of these figures, one could be forgiven for thinking the economy is improving – and not in need of a rate cut – however, this temporary improvement comes during the wider trend of a worsening in the economy and the RBA will tend to focus more on the trend rather than any one data point. The RBA will also be watching the Australian Dollar, which has improved remarkably on the back of a commodities rebound – reaching over 80 cents against the US Dollar last week.

As such, the market and economists are still currently expecting a cut today; futures are pricing a strong chance of a cut at over 75% as of yesterday, which has been echoed by a sell-off of over 250 pips since the AUD breached the 80 cent level last week. With positioning and expectations for a rate cut, a surprise no-change could be the catalyst for another short squeeze – especially if the statement takes a patient or hawkish tone relative to recent months.

Market Preview – US GDP and FOMC Statement

Market Preview - US GDP and FOMC Statement

Get set for a volatile Wednesday as the market digests the one-two punch of GDP and the FOMC Statement out of the US, followed by the RBNZ Rate Statement. The FOMC will likely be considered the headline event of the day, though the GDP figure will certainly set the tone leading in to the meeting at 21:00 server time.

US Advance GDP will be the first major release of the day, at 15:30 server time, and expectations are for a very weak reading. GDP growth is expected to be just 1.0% for the first quarter of the year, in a similar but less extreme echo of 2014. Q1 GDP fell by 2.1% in 2014 – blamed largely on unseasonably bad weather – before a series of stronger growth figures later in the year saw growth stabilise to a respectable 2.2% for the year.

The weak GDP expectations for the first quarter are driven by a number of factors:

  • The crash in energy prices has yet to filter through to consumption, but has affected employment in the previously booming tight oil sector across the US.
  • Weather related weakness is expected to play a part, as it did last year, with consumption deferred during the winter.
  • The strong dollar is weighing on exports.

If the GDP figure is as weak as expected, it may cause the FOMC to delay on a rate rise until quite late in the year. Because of the factors weighing on growth for Q1 this year, the committee might want to wait for confirmation that the dip is temporary – rather than jumping the gun while weak data is still being released and unintentionally helping to keep the economy depressed. Economists are optimistic that the US data will follow a similar pattern to last year, and strong growth later in the year would give leeway to raise rates.

With no Press Conference or detailed economic projections to be released at this meeting – and no rate cut currently expected by economists surveyed – the focus for this release will be on the FOMC’s view of the economic outlook and inflation. The US Dollar will likely swing based on the optimism or pessimism about economic conditions. As a reminder, at the previous meeting, the FOMC was fairly unanimous that rates will increase at some point in 2015 – with many projecting several rate increases (Source: FOMC):

Market Preview - US GDP and FOMC Statement

However, there is expected to be a slight dip in inflation before that – and some weakness in the early 2015 data (Source: FOMC):

Market Preview - US GDP and FOMC Statement

The release is often one of the more volatile announcements in the economic calendar, and will be followed shortly afterwards by the RBNZ Rate Statement – at 00:00 server time (during roll-over). The RBNZ is not expected to change rates from 3.50%, however there are indications that the RBNZ may be moving to a more bearish stance. If the statement shows a bias that is moving towards easing – then traders should be wary for price gaps over the daily roll in NZD based pairs.

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