The markets are in for a busy week as traders price in not one, not two, but THREE monetary policy decisions.
And then there’s the latest reading of Uncle Sam’s labor market at the end of the week, which could spice up volatility for USD on Friday.
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched economic indicators on the economic calendar this week:
RBA’s monetary policy decision
The Reserve Bank of Australia (RBA)’s last meeting minutes showed that members considered another rate hike in April. They eventually decided to keep it at 3.60% to give the central bank more time to assess the economy amidst “considerable uncertainty.”
Q1 2023’s inflation report came in weaker-than-expected since then, and now traders expect RBA to hold its rates steady for a second consecutive month on May 2 at 4:30 am GMT.
A cautious announcement could accelerate AUD’s bearish downswing, especially against safe havens like USD, JPY, and CHF.
FOMC statement
Persistently high inflation and still okay labor market indicators are giving the Fed room for at least one more rate hike on May 3 at 6:00 pm GMT.
But banks tightening their lending standards and economic growth widely missing expectations are getting more and more people to talk about the R-word. They’re also steering some Fed members from their uber-hawkish stances.
This is why traders expect the Fed to raise its rates by only 25 basis points to the 5.00% – 5.25% range that we haven’t seen since 2007 and then likely take a break from its rate hikes.
Then, in a presser, Fed Chairman Powell is expected to try his best to cool down interest rate cut speculations that will lessen the impact of their rate hike. Watch for talks of being data dependent, higher for longer rates, or even further rate hikes.
ECB’s monetary policy decision
With the banking crisis taking a chill pill, the European Central Bank (ECB) can turn its focus back to fighting inflation.
ECB Chief Economist Lane recently said that the latest data warrant another rate hike in May. The question is, will ECB raise its rates by 25bps or 50bps?
Markets are currently on the 25bps team, expecting ECB to bump interest rates up from 3.50% to 3.75% on May 4 at 12:15 pm GMT.
A 50bps rate hike would boost EUR across the board. On the other hand, a 25bps rate hike will turn the markets’ focus on ECB’s forward guidance during the presser scheduled 30 minutes after the statement’s release.
NFP-related reports
A brand new month means we get another peek at Uncle Sam’s labor market conditions!
Markets see job growth moderating in April, with non-farm payrolls (NFP) only adding a net of 190K – the smallest since early 2021 – while the unemployment rate ticks higher from 3.5% to 3.6%.
Meanwhile, average hourly earnings (0.3%) and labor force participation rate (62.6%) are expected to maintain last month’s readings.
The report is scheduled on Friday, May 5 at 12:30 pm GMT. Weaker-than-expected readings will reinforce recession concerns and likely increase the demand for safe-haven assets.
