The USD is higher against major pairs before the end of the March central bank meeting. The U.S. Federal Reserve will publish its Federal Open Market Committee (FOMC) statement on Wednesday, March 21 at 2:00 pm EDT. The US central bank will also release its economic projections for the quarter which could end up signalling more than the three interest rate hikes forecasted in December. The CME FedWatch tool shows a 94.4 percent probability of a 25 basis points rate hike taking the Fed funds rate to 1.50–1.75 percent. Chair Jerome Powell will host his first post-FOMC press conference at 2:30 pm EDT.
- The Fed is anticipated to raise rates by 25 bps
- The Fed will release its economic projections
- US crude oil inventories forecasting a buildup of 2.5 million barrels
The EUR/USD lost 0.63 percent in the last 24 hours. The single pair is trading at 1.2258 ahead of the U.S. Federal Reserve statement. The majority of market watchers anticipate a 25 basis points lift. Economic projections will take on more importance as investors look for clues on the Fed’s rate hike path. Jerome Powell’s press conference will add the most uncertainty to the proceedings as he kicks off his term at the head of the central bank. He is expected to follow on his predecessor direction and keep hiking interest rates, but unlike Yellen he has a more hawkish FOMC that might need tempering to avoid coming out too hawkish and sending the wrong signal to the market.
This week the USD has appreciated 0.31 percent versus the USD on the back of strong fundamentals and a supportive central bank despite the political drama in Washington. American growth is now expected to be on par or surpass European growth which is cooling even as the European Central Bank (ECB) continues to run a stimulus program with no rate hike in sight for 2018.
The US tax reform is one of the victories of the Trump administration and its impact will be considered by the Fed in updating its economic outlook. The case for adding a fourth rate lift in 2018 is one of the biggest questions that will be answered on Wednesday.
The USD/CAD rose 0.05 percent on Tuesday. The currency pair is trading at 1.3084. The Canadian dollar recovered slightly earlier in the week after touching 9 month lows last week. The CAD is down 4 percent since the start of the year after a slowdown in economic indicators and the protectionist trade rhetoric of the Trump administration.
Canadian Prime Minister Justin Trudeau has remained optimistic about the fate of NAFTA. The PM said on Monday that US President Donald Trump appears enthusiastic about agreeing to a trade deal renegotiation. The fact remains that after seven rounds of talks there has been little progress and the feeling of acceleration at this point could also be desperation as elections in the three nations could threaten to derail negotiations.
The announced US tariffs on steel and aluminum hit the Canadian currency, even though those tariffs were later revelled to not be applicable for Canada and Mexico. The last thing the team of NAFTA negotiations needed to hear was the US announcing tariffs just as they discuss the divisive trade agreement. The eight and final round of talks is yet to be scheduled but will take place in the United States in April.
Oil prices rose on Tuesday. The West Texas Intermediate is trading at $63.44 on the back of rising concerns about the Iran nuclear deal. Saudi Crown Prince Mohammed bin Salman is visiting Washington with one of the items in the agenda is to ask US President Trump to toughen its sanctions against Iran. The political differences between the two Organization of the Petroleum Exporting Countries (OPEC) members has driven up prices before, but at this moment the OPEC production cut is one the biggest factors in current energy price stability.
US shale producers are forecasted to start ramping up production to take advantage of current prices. Weather and other disruptions has limited their production ability, but it is not expected to last. OPEC supply has been kept lower thanks to the agreement that runs until the end of 2018. Ongoing discord between members could end up breaking the agreement sooner although so far Russia the biggest non-OPEC participant has pledged its commitment to the deal until the end of the deadline and beyond if necessary.
US weekly inventories of crude will be published on Wednesday, March 21 at 10:30 am EDT. There is a forecasted buildup of 2.5 million barrels which is a slowdown from the higher 5 million buildup in the last report. US crude stocks have risen for the past three weeks and could add a fourth one as shale producers slowly ramp up production.
Market events to watch this week:
Wednesday, March 21
5:30am GBP Average Earnings Index 3m/y
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Economic Projections
2:00pm USD FOMC Statement
2:00pm USD Federal Funds Rate
2:30pm USD FOMC Press Conference
4:00pm NZD RBNZ Rate Statement
8:30pm AUD Employment Change
Thursday, March 22
5:30am GBP Retail Sales m/m
8:00am GBP MPC Official Bank Rate Votes
8:00am GBP Monetary Policy Summary
8:00am GBP Official Bank Rate
Friday, March 23
8:30am CAD CPI m/m
8:30am CAD Core Retail Sales m/m
8:30am USD Core Durable Goods Orders m/m
