Weekly Market Outlook: RBA and BoE to keep interest rates on hold

U.S. fourth quarter GDP to slow

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The economic calendar for the week ahead will see the RBA and the Bank of England holding their monetary policy meetings this week. Both central banks should keep interest rates unchanged.

On the economic front, the data from the United States will see the release of the preliminary GDP figures for the three months ending December 2018. The U.S. GDP momentum could slow down.

The retail sales report that was due a few weeks ago is out this week. Retail sales might rise by 0.1% on the month. The durable goods orders and the ISM’s non-manufacturing PMI figures will also be coming out later in the week.

New Zealand will be reporting on its quarterly employment figures this week. The data will cover the fourth quarter of the year. Data from the Eurozone is quiet this week.

Here’s a quick recap of what’s to come in the currency markets this week.

U.S. fourth-quarter GDP advance estimates

Data from the U.S. will see the advance GDP report for the fourth quarter of 2018 coming out. According to initial estimates, the fourth-quarter should rise 2.6% in the three months ending December 2018.

This marks a relative slowdown compared to a 3.4% increase in the third quarter of the year. The fourth quarter GDP will mark a second consecutive quarterly decline in the pace of economic expansion.

Besides the GDP figures, the retail sales numbers will be coming out over the week followed by the monthly durable goods orders report. Retail sales should rise by 0.1% on the month in December.

The Institute of Supply Management’s non-manufacturing PMI will also be coming out this week. In December, the non-manufacturing PMI fell to 57.6 on the index, following an increase to 60.7 in November.

Bank of England to keep monetary policy unchanged

The Bank of England will be holding its monetary policy meeting on Thursday this week. According to the economists polled, the Bank of England would keep monetary policy unchanged.

The BoE has kept interest rates unchanged for the most part last year. However, with recent economic data suggesting that headline inflation eased to 2.1%, sitting just 0.1 percentage points above the BoE’s target rate, and the fact that wages have been steadily rising, the Bank of England could come out with some hawkish forward guidance.

However, the main issue will be the Brexit uncertainty. Given that the UK will be exiting the EU on March 29 and given the fact that there has been no deal struck with the EU yet, the Bank of England might want to hold off hiking interest rates for at least a month.

Regardless of the Brexit outcome, the BoE officials will be looking to hike interest rates this year. The next rate could possible coming during the second quarter of the year.

RBA to keep rates unchanged

The Reserve Bank of Australia will be holding its monetary policy meeting this week on Tuesday. The RBA will stay on the sidelines as it continues to patiently wait for inflation to rise. Australia’s inflation rate has remained weak, and the recent decline in fuel prices are expected to keep inflation subdued.

The central bank, as a result, is likely to maintain interest rates at the current pace for another month. The RBA is expected to acknowledge the recent trends in the wage growth for the economy. Australia’s unemployment rate fell to fresh lows of 5.0% in December 2018. However, wage growth has remained broadly weak.

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