FX Week Ahead: May Fed and RBA Meetings

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The economic calendar for the week ahead is expected to push ahead with full steam. With the start of a new trading month, a number of economic releases are expected over the week. Among the number of economic releases, the May Fed and RBA Meetings about monetary policy are lined up this week. While no changes are expected from both the central banks this week, the Fed meeting could remain in the spotlight.

Elsewhere, New Zealand will be reporting on its quarterly jobs data this week. The data comes just a few weeks after New Zealand’s inflation showed a slower than expected pace of growth.

A busy week from the United States will see the release of the ISM’s manufacturing PMI and the ADP payrolls concluding into Friday’s non-farm payrolls report.

Data from the UK will see the services, manufacturing and construction PMI numbers coming out for the month of March while the Eurozone will be releasing the flash inflation estimates.

Here is quick recap of the markets this week.

FOMC expected to keep interest rates unchanged

This week’s Fed meeting will likely see no changes to the Fed funds rate. The FOMC had last hiked interest rates in March. The central bank is however in line to proceed with three rate hikes this year meaning that the next interest rate hike is expected at the June FOMC meeting.

Investors will be looking to the Fed meeting, mostly focusing on the Fed’s statement which could give the markets further clues on interest rate hike path. Fed members have been speaking over the past few weeks ahead of the silent period.

Most of the members expressed similar views that the growth inflation will rise over time. The NY Fed President Dudley had however commented that there was no rush for the central bank to rush with rate hikes. However, Dudley was seen revising the estimates on rate hikes.

“Financial conditions are still easy and fiscal policy will likely be quite stimulative in 2018 and 2019,” Dudley said speaking at an event recently. He implied that the Fed funds rate could rise to 3% by 2019.

Besides the FOMC meeting, other economic data over the week includes the ISM’s manufacturing PMI report and the ADP private payrolls report. The week will culminate into Friday’s non-farm payrolls report. Economists are forecasting that the U.S. economy added 185k. This marks a higher number compared to March’s 103k print. The U.S. unemployment rate is expected to fall to 4.0%.

Wage growth is expected to rise 0.2% on a month over month basis. This marks a modest decline compared to the previous month’s 0.3% increase.

UK PMI’s: Manufacturing, Services and Construction

Investors will also be shifting focus to the UK’s monthly PMI reports due this week which will cover the services, manufacturing and construction sectors.

The PMI’s for the UK had signaled a significant decline last month suggesting that growth in the first quarter of the year had cooled. This was consistent with the preliminary GDP report which showed that the UK’s economy had increased at a pace of 0.3% during the first quarter of this year. Construction sector in particular was seen posting a contraction.

Economists forecast that activity in the manufacturing sector might have slowed to 54.5. This marks a slowdown from 55.1 seen the month before in March. Construction PMI is forecast to recover to 50.5 following a slip into contraction territory at 47.0 in March. The services PMI is expected to rise to 53.5 in April compared to 51.7 the month before.

The economic data comes ahead of the BoE’s meeting. A recovery in the indicators on the strength of the economy could potentially renew expectations of a BoE rate hike at the meeting in May.

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