The markets open to a short trading week with most of the trading closed in Europe and the United States. Despite a short week, there is no shortage of fundamentals that will likely shape the outcome of the currency markets this week.
Starting the week off, the main themes will be the central bank meetings. The Bank of Japan and the Bank of Canada will be holding their respective monetary policy meetings this week. No changes are expected either of the central banks this week.
On the economic front, inflation data from Australia will be closely watched. The data comes as the Reserve Bank of Australia assesses the economic reports. The RBA has kept interest rates steady for nearly two years now. But with inflation not showing any signs of pressures, the RBA will have to blink sooner rather than later.
Investors will be looking to the US advance GDP report this week, due on Friday. The gross domestic product for the first quarter is forecast to show a 2.2% increase. This is a slower pace of growth comparing to the last quarter of 2018. But it could have been worse as the prospects of a 2% GDP growth seemed unlikely at the start of the year.
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Here’s a quick recap of what’s to come in the currency markets this week.
Bank of Canada to Stand Pat on Interest Rates
The Bank of Canada will be holding its monetary policy meeting this week on Wednesday. The markets, in general, expect the BoC to remain on the sidelines. Canada’s interest rates stand at 1.75%. The BoC initially started off on a hawkish note in its rate hike cycle.
However, the optimism fell after a weak patch of economic data. The central bank has kept interest rates steady at 1.75% for the past five monetary policy meetings. The shift in the BoC’s forward guidance comes amid both domestic and global uncertainties.
However, if recent trends are anything to go by, then it is quite likely that the Bank of Canada could resume its rate hikes in the near future. But it is too early to tell at this point. At this week’s meeting, investors will be looking to the BoC’s forward guidance.
With interest rates being held steady, the markets will be looking to the upcoming quarter to assess whether the BoC will maintain the status quo.
Australia Quarterly Inflation Rate Report
The Australian Bureau of Statistics (ABS) will be releasing the quarterly inflation report this week. Australia’s CPI is forecast to rise by 0.2% for the period marking a slower pace of inflation growth in the first quarter. The data covers the period for the first three months of the year.
In the previous three months, Australia’s consumer prices grew at a pace of 0.5%. For the full year of 2018, Australia’s CPI fell below the RBA’s target rate of 2% – 3%. Headline inflation grew just 1.8% for 2018 on an annual basis.
With the first quarter inflation forecast to come out weaker than the previous quarter, the pressure is likely to build up on the RBA.
All Eyes on US Advance GDP Report
Investors will get a glimpse into how the US economy was faring in the first three months of the year. This year started off with fears of a recession. But that view has shifted since the past three months.
Economists forecast that the US gross domestic product grew at a pace of 2.2% in the first quarter of 2019. This marks the same pace of growth as seen in the previous quarter.
The market expectations previously were of the view that the US economy wouldn’t be able to grow above 2% on a quarterly basis. But the recent upturn in various economic indicators suggests that the underlying sentiment still remains robust.
If the GDP report manages to beat the estimates, investors will begin to start pricing in one more rate hike during the year.