RBA, RBNZ and BoE interest rate decisions and other key financial data in focus.
Next week’s market movers
- • In the UK, the focus will be shifted to the BoE interest rate decision on Thursday and is expected to remain on hold.
- • The RBNZ’s interest rate decision on Wednesday should also attract attention despite the forecast to remain on hold.
- • Also, RBA’s interest rate decision is expected to move the markets, despite that it is forecasted to remain on hold.
- • We also get key economic data from Germany, the Eurozone, the UK, the US, and Canada.
On Monday, during the European morning, we get UK’s Markit/CIPS Services PMI for January. The indicator is forecasted to drop to 54.0 from the previous reading of 54.2. The importance of the indicator lays with the large proportion of the services sector in the UK economy. However, the small amount of change could mute the reaction. Should the actual results meet the forecast, GBP could weaken somewhat. Later on, during the US session, the US ISM Non-Manufacturing PMI will be released. The indicator is forecasted to rise slightly to 56.3 from the previous reading of 55.9. The indicator as such is important, however, should the actual results meet the forecast, it could indicate a reversal of the past three months downward trend and hence gains in importance. Any actual result, equal or above the forecast could strengthen the USD.
On Tuesday, during the Asian day, the RBA will announce its interest rate decision. RBA is expected to remain on hold at +1.50%. As mentioned, RBA is expected to remain on hold preserving the interest rate level at +1.50%, as it did since September 2016. The inflation rate has recently ticked down to +1.9% on a year on year basis (YoY), strengthening the argument for RBA to remain on hold as it is now out of RBA’s inflation target range of +2.0%- +3.0%. Please be advised that currently, the market seems to expect RBA to remain on hold as AUD Overnight Index Swaps (OIS) imply that scenario by a probability of 99.93%. The accompanying statement should, however, provide a valuable insight into RBA’s intentions about possible future rate hikes. Later on, in the US session, we get New Zealand’s unemployment rate for Quarter (Q) 4. The rate is forecasted to tick up at 4.7% from the previous reading of 4.6%. The indicator is important as such, however, it also gains in importance as it is being released one day ahead of NZBA’s interest rate decision. Please be advised that NZBA has a dual mandate for both the inflation rate as well as unemployment. However, should the actual results meet the forecast the markets reaction may be somewhat muted as the difference is small. We expect the NZ Dollar to weaken somewhat should the forecasts be realised.
On Wednesday, late in the US session, RBNZ’s interest rate decision will be announced. RBNZ is expected to remain on hold at +1.75%. As mentioned before RBNZ is expected to preserve the +1.75% interest rate which it has since October 2016. The argument for RBNZ to remain on hold is strengthened by the inflation rate which has dropped to +1.6% YoY in Q4 2017 from +2.2% YoY in Q1 2017. Please be advised that currently, the market seems to expect RBNZ to remain on hold as NZDOIS imply that scenario by a probability of 99.93%. Attention is expected to shift towards the accompanying statement for RBNZ’s view of the New Zealand economy and the future rate hike (or not) path.
On Thursday, during the European morning, we get Bank of England’s interest rate decision. BoE is expected to remain on hold at +0.50%. Despite inflation rate is currently at +3.0% YoY, which is above the Banks target of 2.0% YoY, the bank could be remaining on hold due to the uncertainty of the Brexit negotiations, in an effort to retain further flexibility. More explanations could be provided in the Inflation Letter and the Inflation Report which will be released also that day. We expect market focus to shift to those two documents. Please be advised that currently, GBPOIS imply a probability of 97.27% for BoE to remain on hold. Also, bear in mind that BoE had raised the interest rate by
25bp in November 2017.
On Friday, during the Asian morning, we get China’s CPI rate for December. The rate is currently at +1.8% on a year on year basis. AUD and NZD are to be influenced by this indicator as both economies have a great exposure to China. Should the actual results be higher than the previous readings, NZD and AUD could strengthen. Later on, we get Canada’s Unemployment rate. The indicator is forecasted to rise to 6.0% from previous readings of 5.7%. The indicator is important as it is accompanied by other employment data, but also by the marked increase in value. Should actual results meet the forecast the CAD could weaken.
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