As is usual with the start of the month, and the start of the second quarter, there is a lot on the economic calendar to keep the markets moving.
We start with the Asian session with the RBA interest rate decision. There, we are expecting a change in posture. Then we move to Swiss inflation data, where projections indicate that it will further move away from targets. Here are some things to keep in mind help you navigate the fundamental effects on the currency markets.
The Reserve Bank of Australia will be publishing its rate decision at 05:30 CET (which would be later today at 23:30 EST.) Expectations are that they will maintain rates at the current level. Focus will be on the Rate Statement released at the same time, with speculation that the bank will change its outlook from broadly neutral to negative.
Given the breadth of the consensus regarding a revision to the RBA’s outlook on future rate moves, we could expect that the market has priced in a change to the negative. Therefore, the larger potential for surprise in volatility is on the upside. However, a “relief” drop depending on the strength of the change in wording is also a distinct possibility.
Australia’s economy has been under pressure lately, as the inflation rate has been close to target. Other central banks have either halted tightening stances (Fed) or switched to expressing dovish outlook (ECB). This supports the idea that the RBA will follow suit. Last week the RBNZ switched to a dovish outlook from neutral, and with the kiwi economy in slightly better straights and very closely linked to their neighbor, we can interpret it as a harbinger of what we might see out of Australia.
That being said, the RBA is known for being conservative, and just two months ago it switched from a tightening to a neutral stance. One wouldn’t anticipate the bank to be so bold as to directly say that they expect the next rate to be a cut, but we should note that the balance of risks has changed (as did the RBNZ). And/or, removing language asserting a gradual return to the inflation target is likely. Those are the primary things the market could interpret as a shift towards a negative bias.
Swiss Inflation Data
February’s Swiss CPI came in to halt the multi-month decline that the indicator had been showing since peaking in mid-2018, by remaining flat at just 0.6% annual. This was within market expectations and was a repeat of the 11-month low. Projections are for the annualized rate to remain steady at 0.6%.
What the market focuses on is the month over month figure which forecasts say will tick down a decimal to just 0.3%. This is after the series surprised the market last month with the largest increase in seven months. The SNB closely follows this data series, so moves in the index often show up in the currency.
Recent lackluster inflation reports have been tied to slowing growth in the Swiss economy. This comes as exports to its largest trade partners dwindled following poor economic performance in the euro area.Test your strategy on how the CHF will fare with Orbex - Open Your Account Now.