Forex Weekly Market Outlook

Weekly Market Outlook: FOMC, RBA, BOE Meetings to Watch

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Weekly Market Outlook — Volatility is likely to continue this week with the RBA, FOMC, and BOE convening to discuss their interest rate policy. In the US, the Fed is forecast to raise rates 75bps, and traders will be keeping an eye out for indications that rate hikes may be on their way out. In addition, the monthly jobs report and ISM survey are coming up. Eurozone inflation data are due in Europe. RBA and BoE will announce several key rate decisions. In addition, New Zealand, Germany, and Canada will release labor market data this week.

Key Data to watch on the Economic Calendar this week

Monday, 31 October

  • EUR: GDP Growth Rate Flash (Q3) 
  • EUR: CPI Flash (OCT) 

Tuesday, 1 November

  • AUD: RBA Interest Rate Decision 
  • USD: ISM Manufacturing PMI (OCT) 

Wednesday, 2 November

  • NZD: RBNZ Financial Stability Report 
  • NZD: Unemployment Rate (Q3) 
  • USD: Fed Interest Rate Decision 

Thursday, 3 November 

  • GBP: BOE Interest Rate Decision 
  • USD: ISM Non-Manufacturing PMI (OCT) 

Friday, 4 November 

  • AUD: RBA Statement on Monetary Policy 
  • CAD: Employment Change (OCT) 
  • USD: Non-Farm Payrolls (OCT) 

USD — Rate hikes are almost certain

FOMC members will meet on Wednesday this week and are widely expected to raise rates by 75 bps to bring the Fed Funds rate to 4.00% at the end of the meeting. In a tweet on Friday, WSJ’s Fed whisperer, Nick Timiraos, confirmed this by stating that “the Fed is not dependent on data points, and next week’s 75 bps decision seems unlikely to change…”. September’s CPI was still high at 8.2% (down slightly from August), but the Core-CPI was 6.6%, higher than August’s 6.3%.  

Weekly Market Outlook

Ultimately, inflation readings are on the rise rather than falling, the economy is growing again after two consecutive quarters of declining GDP, and job creation continues apace as the number of job openings exceeds the number of unemployed. It seems that employment numbers have stayed strong through the month of September, and October’s NFP data, which will be released on Friday, is expected to remain strong with 220,000 new jobs added to the economy. 

GBP — BoE Playing it safe 

Needless to say, it’s been a big month for the BOE. The Bank of England will meet on Thursday to discuss interest rate policy. The last interest rate meeting was a big disappointment for markets due to current PM Truss’ “mini-budget.” Market expectations reached 150bps at one point. Recent events however have resulted in Liz Truss resigning, and Rishi Sunak has taken over as Prime Minister. The market has settled down, with interest rates and bond yields returning to pre-Truss levels. With the budget crisis in the rearview mirror, the sterling is realigning with its classic drivers – monetary policy and risk sentiment. 

A 75bps rate hike is expected for this week’s meeting, bringing the key rate to 3%. In September, CPI was 10.1% YoY compared to 9.9% YoY in August. In the last week, the sterling appreciated by 2.75%, making it the best-performing G10 currency. The weekly gain was the third in a row. Last week, it reached almost the (38.2%) retracement objective of this year’s decline after nearing $1.1640 in the middle of the week. In the next few days, there is potential for additional gains, even if modest. 

AUD — RBA to raise rates by 25bps

There are expectations that the RBA will raise rates by 25 bps on Tuesday, bringing the key rate to 2.85%. After raising rates by 25 bps at its previous meeting on October 4th, the central bank surprised markets by only doing so by 25 bps. There are however expectations of further rate hikes due to too high inflation.  

Weekly Market Outlook

Australia released its Q3 CPI data on the 25th of October. Inflation was higher than expected at 7.3% vs. expectations of 7% and a 6.1% reading in Q3. Could the RBA surprise again by raising rates by 50 bps, given the larger-than-expected inflation jump? Be sure to pay attention to guidance as well. The central bank said it expects inflation to be near 7.75% in 2022 at its last meeting. Traders should look for any wording that may suggest this rate will be higher, which could result in an increase in Australia’s terminal rate. 

According to recent comments by key Reserve Bank of Australia officials, the central bank still has a long way to go to neutrality, the point at which monetary policy cannot be categorized as either expansionary or contractionary. According to RBA Assistant Governor for Economics Luci Ellis, the neutral rate should be between 2.5% and 3.5%; the RBA’s main rate is currently 2.6%. The RBA may tighten further in the months to come but in more measured increments. It may begin as soon as the November RBA meeting when markets anticipate a 103% chance of a 25-bps hike (3% chance of a 50-bps hike). 

EUR — A flood of data from the Eurozone  

In euroland, the third quarter’s GDP growth and the October inflation figures will get the ball rolling today. The unemployment rate will be released on Thursday. The recent decline in energy prices suggests that the winter won’t be Armageddon after all as European business surveys indicate an economy on the verge of recession. 

With Fed/ECB policy also convergent, the outlook for the euro is not as bad as it once was. However, the euro seems to be recovering from the worst of its troubles, which would require a ceasefire in Ukraine and a brighter economic outlook worldwide. 

NZD — Unemployment rate drop expected

It is expected that unemployment will have fallen back in the third quarter, while a shortage of workers will raise wages. According to economists, the unemployment rate will be 3.2 percent in the third quarter, compared to 3.3 percent in the June quarter. “We expect Wednesday’s figures to depict a very tight labor market, with employment above its maximum sustainable level,” according to ASB bank’s Mark Smith. Unemployment rate and other labor utilization metrics should remain near record lows due to widespread and acute worker shortages.” 

Considering New Zealand’s high level of inflation, the money markets expect a half-point rate rise or a 75-basis point hike at the RBNZ’s meeting on November 23. 

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