FX Week Ahead: RBA, ECB meetings. February payrolls

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Following the hawkish rhetoric from Fed officials last week, the markets will be prepared for this Friday’s payrolls report, which could cement expectations for a March rate hike which is already looking like a done deal. Besides the Friday’s payrolls report, Canada will also be reporting on its jobs. The ECB and the RBA will be meeting this week, but no changes are expected from either of the central banks. Here’s a quick guide to this week’s key events.

RBA Monetary Policy Meeting

The Reserve Bank of Australia’s monetary policy meeting is due on Tuesday where interest rates are unlikely to be changed as the RBA is expected to maintain its cash rate at 1.50%, which will be the sixth consecutive month of keeping rates steady at this level.

RBA Interest Rates: 1.50%, Feb’17
RBA Interest Rates: 1.50%, Feb’17

At the meeting in early February, the RBA Governor, Philip Lowe released new economic forecasts and projected the Australian growth rate to be around 3% for the next few years, which was slightly higher from its previous forecasts.

Last week, data from the Australian Bureau of Statistics showed that the Australian economy advanced 1.1% in the three months ending December 2016. The data beat estimates amid concerns that the Australian economy might slip into a recession. On a yearly basis, the Australian economy rose 2.4% up from the forecasts of 2%.

The RBA is likely to acknowledge this as well as taking into account the retail sales figures that come the day before. Economists polled expect Australia’s retail sales to rise 0.4% in January 2017 which is expected to reverse the 0.1% declines registered in December.

ECB Monetary Policy Meeting

The European Central Bank meeting this Thursday will be the second meeting this year after the central bank left monetary policy unchanged earlier in January. Back then, policymakers had already argued about the pace of tapering following headline CPI showing signs of life.

Eurozone inflation rate: 2.0%, Feb'2017
Eurozone flash inflation rate: 2.0%, Feb’2017

Last week, flash consumer prices in the Eurozone showed a 2% increase for the first time in February which was a cheer for many as they viewed this as a victory for the ECB’s monetary policies. However, core CPI which excludes food and energy prices remained unchanged, rising at a pace of 0.9%.

The central bank is likely to focus on this, which it already mentioned back in January that the central bank was looking for strong evidence if underlying inflationary pressures. While the uptick in inflation might prove to be something for policy hawks, Mario Draghi is most likely to brush aside the excitement.

Besides, the CPI, Greece is also likely to be mentioned and whether the sovereign bonds will make the cut to be qualified by the ECB for purchases. Amid the political clouds looming over the Eurozone with the Netherlands and French elections coming up soon, the ECB is expected to remain on the sidelines.

U.S. Nonfarm payrolls – Wages forecast to rise

With Janet Yellen maintaining the hawkish narrative and potentially signaling that the Fed was getting ready to hike rates in March, this Friday’s payrolls report will be a number worth watching. The bar for disappointment is quite high, and thus, it is quite likely that a March rate hike is almost a done deal.

US Unemployment Rate, January 2017: 4.8%
US Unemployment Rate, January 2017: 4.8%

Economists polled expect the U.S. unemployment rate to fall to 4.7%, from 4.8% last month in January, while wages, which will once again remain at the center, is tipped to increase 0.3% on a month over month basis.

February’s payrolls report was clearly disappointing as wages were seen revised lower for the previous month. This clearly overshadowed the 227k jobs headline print. Back in February, based on the data, the markets had written off a rate hike in March, but things look very different now.

Wage growth in February rose just 0.1% while the jobless rate edged higher to 4.8%. On a year over year basis, average hourly earnings were seen rising just 2.5%.


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