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Market Analysis

Fundamental Analysis: Central Banks Taking Center Stage this Week

March 04, 2019
BY Michael Stark

The biggest news affecting currency markets so far today has been increasing expectations of a trade deal between the USA and China. The headlines have given some support to more risk-sensitive and emerging currencies. Meanwhile, this is a very important week of meetings at central banks: no less than four are scheduled.

Among majors, the dollar has been one of the biggest gainers in today’s Asian and European sessions. Euro-dollar has fallen to week lows around $1.133. The pound has also declined against the dollar, with cable moving below the important level of $1.32 once again. USDJPY has been generally stable although with a very slight decline to about ¥111.96.

RBA meets tomorrow with economic remarks in focus

The Reserve Bank of Australia is the first to decide its rate this week after its meeting tomorrow at 03.30 GMT. Expectations point towards the bank holding at 1.50%. However, traders will be looking out for any negative comments by governor Philip Lowe or others. Falling profits for many blue-chip Australian companies and a worsening consumer outlook are among the issues in view. These might affect the Aussie dollar if the bank emphasises them as factors against a rate hike or perhaps even leading to a cut.

Can Turkey sustain its repo rate?

Next up is the Central Bank of the Republic of Turkey (CBRT) at 11.00 GMT on Wednesday. All eyes are on how long the bank can maintain its very high one-week repo rate of 24.00%. The main factor behind this focus are inflation and especially food inflation slowly slightly in Turkey. Adding to this, there has been a slight improvement in Turkish data recently on the whole. The lira is expected to be highly volatile around the CBRT’s announcement. Any move to cut rates would be likely to spur sharp losses for TRY in most of its pairs.

BoC set to hold at 1.75%

The Bank of Canada’s rate decision also comes on Wednesday. The target ON rate will remain at 1.75% according to the consensus. What traders anticipate most though are the comments in the bank’s decision and hints at any future rate hikes. Data from Canada has overall been lacklustre in 2019 and the stutter in oil’s rally so far this year has also had an effect on the Canadian economy. On the other hand, the BoC has a tendency to surprise markets with its rate decisions.

ECB also likely to stay still on Thursday

The last and largest rate decision this week is from the European Central Bank on Thursday at 12.45 GMT. The key interest rate is universally expected to remain at zero, but markets will probably be highly volatile around the decision and press conference. Among the negatives likely to be pointed out are lower inflation in the eurozone. The ECB is also expected by some analysts to downgrade its forecasts for growth and inflation, which would affect the euro negatively.

If all’s as expected, the dollar’s the winner

The fundamental picture in general is somewhat negative for all of these currencies in the runup to the central banks’ meetings this week. The dollar though has shrugged off President Trump’s comments about its strength and appears to be ready for more gains ahead of Friday’s all-important NFP.

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