US Dollar – Dot Plot the focus at Fed meeting
The main event for the U.S. Dollar is the meeting of the U.S. Federal Reserve (Fed) on Wednesday night. Since no actual change in interest rates is expected, the main focus will be on the Fed’s economic forecasts, the updated dot-plot diagram which shows the Fed’s expectations for the future course of interest rates, and the commentary of Fed Chairman Powell.
The market is currently not expecting any further interest rate rises from the Fed in 2019. This contrasts with the Fed’s own projections based on the dot-plot which sees them making roughly two more interest rate hikes in 2019.
There is a risk, however, that the Fed could revise down their dot-plot - which hasn't been updated since December - more in line with market expectations, and that this could precipitate a decline in the Dollar. Individual Fed member’s comments in 2019 indicate a shift in stance towards a more ‘wait-and-see’ stance which could precede a change in the official dot-plot on Wednesday.
Euro – Macroeconomic data returns to drive single currency
Last week saw the Euro area largely go under the radar in terms of news flow. However this week will see the return of macroeconomic data which will be key in driving the Euro this week.
The main release in the week ahead for the Euro is March manufacturing and services sector PMI data, out on Friday. PMI’s are an important leading indicator which provide a preview of what hard data is likely to show.
PMI’s are surveys of key purchasing managers in companies, who tend to have access to a privileged perspective and are thus able to more accurately gauge the health of the company and industry sector they are in. Given the slowdown in Eurozone GDP noted in 2018 and the beginning of 2019 investors will be eager to see what the results are for the most recent surveys in March.
Consensus expectations are for the composite PMI index to rise to 52 from 51.9, for manufacturing PMI to rise to 49.5 from 49.3 previously, and for services PMI to fall to 52.7 from 52.8. A result of over 50 indicates expansion and below contraction. Another key business survey, the ZEW, is out on Tuesday at 10.00, and is forecast to show a dip in Eurozone-wide sentiment to -18.7 in March from -16.6 in the previous month. A deeper-than-expected fall could weigh on the single currency, and vice-versa for a rise.
Sterling – Brexit, the BoE and Jobs data on busy week
As was the case last week, the main fundamental driver for the Pound in the week ahead is probably developments in the Brexit process, with the Bank of England (BOE) meeting on Thursday also likely to cause volatility.
It is highly likely that the government will try, for the third time, to get its Brexit deal approved by Parliament, or failing that, that the EU will require a lengthy delay of article 50. The latest reports from Brussels are suggesting the EU may try to make a delay conditional on either the UK having a second referendum, a general election or a very firm plan.
It is suggested this may focus minds, especially amongst Brexiteers who could fear a hijacking of Brexit if there is a delay. This will put pressure on them to accept the government’s negotiated deal. The two most likely scenarios, therefore, are that Theresa May’s deal finally gets approved on a third attempt, or that Brexit is delayed on the condition of a referendum or general election being held. Both would be very positive for the Pound, which compliments the overall bullish technical outlook.
Australian Dollar – RBA meeting minutes headline
The two key releases for the Australian Dollar are the minutes of the last Reserve Bank of Australia (RBA) meeting and employment data.
Analysts are currently split over whether the RBA will cut interest rates or not so the RBA minutes will be a closely watched deciding factor in the debate with implications for the Aussie. If the members of the RBA policy committee appear to endorse a possible rate cut it would weigh on the Australian Dollar. Lower interest rates weigh on currencies as they make the country less attractive as a destination for foreign capital inflows. The minutes are released on Tuesday.
New Zealand Dollar – GDP leads domestic data
The main data releases for the Kiwi include the current account and overall economic growth (GDP).
GDP data for Q4 is out at the same time on Wednesday and is forecast to show growth of 0.6% from 0.3% previously. The higher the growth rate, the stronger the currency, so a surprise increase would appreciate the Kiwi and vice versa for as surprise lower.
Other fundamental news events which are most likely to influence all the major currencies this week are those related to China, which is the largest single importer of New Zealand’s goods.
The signing of a trade deal between the U.S. and China would eliminate one major headwind for global markets and is currently the more probable outcome according to most analysts. There is more of an incentive for both superpowers to make a deal because it is economically in their best interests. This is especially the case given the growing U.S. trade deficit due to falling exports to China.
Treasury secretary Steven Mnuchin recently said that they had made a “lot of progress” in trade talks but did not reveal any details and said, quoting President Trump, that it was more important to get “the right agreement and not rush it” than any deal. This suggests a breakthrough in talks may take longer than a week.
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