Loonie, Aussie and Kiwi Look To China and Rates for Direction

Market Analysis /
04 Mar 2019

Canada - Clarity is needed

The main event for the Canadian Dollar this week is the Bank of Canada (BOC) policy meeting on Thursday. The BOC may adjust its stance in light of new data that suggests the economy is slowing, and adopt an even more dovish position. This would have a negative impact on the Canadian Dollar because the expectation of lower interest rates is usually negative for a currency. What investors want is some clear direction after a few months of mixed messages from Gov Poloz.

Other Canadian economic indicators released in the week ahead include December’s trade figures and, February Ivey PMI scheduled for Wednesday, as well as the February employment numbers due out on Friday. The jobs data is forecast to show the unemployment rate falling to 5.7% in February from 5.8% previously, gross employment to fall by -5k, and the participation rate to fall two basis points to 65.4%.

 

Australia - Rates, and China dominate the agenda

The Aussie remains a proxy for investor sentiment towards Asia, and China in particular. The day-to-day shift in sentiment regarding the U.S.-China trade negotiations will play a strong role in the currency's performance this week, and as further developments could be announced at any time,  it signals we should be cautious. It appears that both China and the U.S. are committed to reaching a deal, but the timescale is the biggest issue.

The main domestic event for the Australian Dollar this week will be the Reserve Bank of Australia (RBA) rate decision on Tuesday. Markets have been quite pessimistic about the RBA. From expecting the next policy move will be to raise rates investors and market participants now fear the RBA may cut them amid the continuous posturing between the U.S. and China. The overall effect on neighboring countries and the global economy is stark and if it continues the RBA could be forced to act.

 

NZD - Domestic 

This week the most important data release for the Kiwi is not from New Zealand, but rather China, in the form of Chinese trade data, since much like Australia, New Zealand’s main trading neighbour is China, the state of the Chinese economy has a direct impact on NZ.

Recent China growth fears have hit the Kiwi as well as concerns about the trade war with the U.S. Although fears eased in the previous week after president Trump decided to delay the imposition of higher tariffs on Chinese imports, the possibility of an escalation remains a risk for investors.

Chinese trade data in February is out on Friday, and is expected to show a fall in the surplus to $25.6bn from $39.2bn in January. Exports are forecast a decline of -4.5% (from 9.1% prev) and Imports to fall -1.4% from -1.5% previously.

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