The US dollar regained some of its lost ground as the first quarter of 2018 ended. Is this greenback comeback going to last or are is it only a correction? The first week of Q2 features a full buildup to the Non-Farm Payrolls and also other top-tier events Here are the highlights for the upcoming week.
US Q4 2017 GDP was upgraded to 2.9% in the final read, better than had been expected. The Fed’s favorite inflation measure, Core PCE, ticked up to 1.6% y/y, meeting the forecasts, but still an upgrade. Trade tensions eased as the US and China made more positive signs regarding averting a trade war. This allowed the US dollar to recover despite a mixed stock market and a drop in bonds. End-of-quarter flows were probably also in play. UK GDP remained low in the final read while Canada’s figure disappointing with an outright contraction in January. Germany’s inflation came out below expectations, weighing on the euro.
ISM Manufacturing PMI: Monday, 14:00. The gauge for the small, yet important, manufacturing sector is the first hint towards Friday’s Non-Farm Payrolls report. The indicator reached a score of 60.8 points in February, reflecting robust growth. A small slide to 60.1 is projected for March.
Australian rate decision: Tuesday, 4:30. The Reserve Bank of Australia has not changed its interest rates since 2016 and this March decision is unlikely to be very different with a consensus that the interest rate remains at 1.50%. The team led by Phillip Lowe will likely continue saying that the high value of the currency weighs on reaching the inflation goal despite the recent drop of the A$ against the greenback. Household debt and the slow pace of growth in wages are sources of worry while the relatively low unemployment rate and exports are still doing well. Any change in the tone may move the Aussie as expectations are very low for any kind of move. Markets predict no rate hikes in 2018.
Lael Brainard talks: Tuesday, 18:30. The Governor at the Federal Reserve is a permanent voter and known as a dove. Any hawkish tilt in her speech in New York may help convince markets that the Fed is leaning towards four hikes in 2018, the missing point in the rate decision in March. Brainard is not a frequent speaker and her words carry more weight as she is a permanent voter.
Euro-zone inflation: Wednesday, 9:00. The initial read for inflation in March is expected to show an increase in CPI from 1.1% to 1.4% y/y and core CPI from 1% to 1.1%. However, expectations may have dampened after Germany’s figures came out below expectations. The ECB is likely to taper down its bond buys in September and end it completely at the end of the year. However, there is a fierce internal debate within the Governing Council between the doves such as President Draghi and the hawks, led by the leading candidate to replace him, Jens Weidmann. Inflation is the single needle in the ECB’s compass and any rise or fall matters.
ADP Non-Farm Payrolls: Wednesday, 12:15. The ADP report for the private sector serves as a hint towards the NFP even though the correlation between the reports is not always clear to see. In February, ADP reported a strong gain of 235K jobs and a lower gain of 206K is predicted for March.
ISM Non-Manufacturing PMI: Wednesday, 14:00. The last hint for the NFP comes from the forward-looking index for the services sector, the largest in the US. The score hit a high of 59.5 points in February and a small dip to 59.2 is expected. The employment component is also significant as a hint towards Friday’s big event.
UK Services PMI: Thursday, 8:30. As in the US and most developed economies, the services sector is the most important one, and the financial services industry is especially eyed. Markit’s PMIs culminate with this event. After seeing OK growth with 54.5 points in February, a similar score of 54.2 is expected for March.
US Non-Farm Payrolls: Friday, 12:30. The “King of forex indicators” is again the wages component. After a strong start to the year, wage growth decelerated to 2.6% in February. This time, a small rise to 2.8% is expected. Month over month, an increase of 0.3% is projected after 0.1% last time. Topline job growth is expected to rise by 190K after a whopping gain of 313K in February. There may be significant revisions after such a strong outcome. The unemployment rate, already at a low of 4.1%, is estimated to have slipped to 4%. The participation rate stood at 63% back in February and a significant change there may skew the unemployment rate. Unless the change in jobs is extreme, wages remain in the forefront.
Canadian jobs report Friday, 12:30. Canada finally had a “normal” jobs report in February, a gain of 15.4K jobs after a crash in January and two huge jumps beforehand. Expectations for March stand at a gain of 20.3K, another healthy and normal rise. The unemployment rate is expected to remain unchanged at 5.8%. Note that the composition of jobs, between full-time and part-time, also moves markets, which want to see more full-time positions.
Mark Carney talks Friday, 15:15. The Governor of the Bank of England will address the International Climate Risk Conference for Supervisors and the focus is on climate change. However, any comments about the global or British economy in his Amsterdam speech may move the pound.
Jerome Powell talks Friday, 17:30. As markets will be winding down towards the weekend, Fed Chair Powell will talk in Chicago and will have a chance to respond to the Non-Farm Payrolls report. The topic is the economic outlook, certainly related to monetary policy. Powell was somewhat cautious in his post-rate decision press conference, playing down the dot-plot and expressing some concern about wage growth and trade topics. His words will set the tone for the close and also the open for the following week.
*All times are GMT
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