It will a busy Central Bank week this week, with the Fed, BoJ and BOE all on tap. The markets are fully subscribing to a March Fed rate hike, so the focus will be on the dot plots and any hint of accelerating the path of interest rate normalisation.
Beyond the central banks, the markets will deal with the messy and expensive Brexit divorce proceedings and a possible article 50 trigger. And of course, markets will be closely eying the Dutch elections as tensions rise across Holland, while US President Trump meets with German Chancellor Merkel. Regionally, US Secretary of State Tillerson visits Asia amid rising geopolitical noise, plus the first budget outline for the US fiscal 2018 year is expected along with a confrontation about the US debt ceiling, which could be the moment of truth for the markets.
While the NFP was supposed to be the key attraction Friday, the debate surrounding the ECB and President Trump outstayed the NFP effect. Friday’s solid NFP data will certainly open the door for the March Hike, but the print was simply not strong enough to move the Fed dial for repricing in June, and with dealers underwhelmed, they were quick to take profit on long dollar positions heading into the weekend.
Australian Dollar
The dollar rally, for the time being, has been less significant against the AUD, and with risk trading well, the market has been unable to move below.7500, likely supported by a relatively hawkish RBA statement.
Attention focuses on expectations surrounding commodity prices, and while the oil markets roll over, sentiment in the commodity space remains buoyant which should be supportive to the Aussie dollar. The balance of risk will be lower for the AUD near term, due to political tensions in the UK, the Netherlands, and the dot plot outlook in the USA, as mentioned above.
Euro
Draghi’s forward guidance in the Q&A (despite the statement unchanged) has left the Euro looking solid as traders’ pile into the Euro crosses, particularly against the JPY and CAD. There has been an aggressive move higher on the Euro as political risk positioning unwinds with French election volatility dropping, as it appears a Le Pen victory was overestimated and as traders establish newly minted long Euro positions on Draghi’s suggestive guidance.
Japanese Yen
It is widely expected that the BOJ money printing presses will continue to churn and it is unlikely that the BOJ, with USDJPY trading below 120, will risk any shift in policy. In the meantime, it is over to the Federal Reserve board to do the heavy lifting.
