Weekly Market Outlook: Markets were ruled by volatility after the Russian-Ukrainian crisis outbreak. Aside from geopolitical tensions, traders will have a lot to focus on this week. The Reserve Bank of Australia will meet amid rising expectations for a rate hike later this year. Meanwhile, the Bank of Canada is widely expected to raise rates by 25 bp on Wednesday, and probably signaling more hikes before year end. Comments of Fed Chair Powell before the congress and NFP data on Friday are expected to affirm a rate hike in March.
AUD Higher ahead of RBA Rate Decision
It will be a busy week for the Aussie waiting for RBA’s rate decisions and Q4 GDP growth. The Australian Dollar was a top performer among G10 currencies against the USD. However, the outlook remains uncertain given the accelerating volatility as geopolitical tensions intensify.
The Reserve Bank of Australia will meet on Tuesday and no policy decision is expected following the February decision to end bond purchases. The central bank will likely hold interest rates at current levels of 0.10% as restrained wage growth still poses downside risks on surging inflation and tightening labor market. Wage growth is expected to pick up this year, paving way for a possible rate hike before year end.
Inflation is way ahead of the RBA’s expectations, rising to 3.5% in Q4 2021 due to higher energy prices and increasing demand. January’s unemployment rate stood at 4.2% for the second consecutive month, settling at RBA’s expected range a year earlier than the bank anticipated.
Meanwhile, the Australian economy is set for a major rebound in Q4 after the sharp contraction seen in Q3. The economy is forecasted to show a 3% QoQ growth in the October-December quarter following -1.9% shrink caused by lockdowns in the country’s major cities.
Loonie Eyes a 25bp Rate Hike
The Bank of Canada delayed hiking rates in January amid rising concerns about the Omicron variant. But the overheating economy seems to ignore such concerns as inflation sits at the highest levels in three decades. The bank is widely expected to announce a 25bp rate hike despite the recent geopolitical turmoil.
Annual inflation rate accelerated to 5.1% in January, the highest since 1991. The rise in oil prices after the Russian-Ukrainian crisis is expected to boost the domestic economy, stimulate sector’s investments and pose upward pressures on the Canadian Dollar. In this regard, expectations refer to 6 rate hikes in 2022, followed by probably 3 more in 2023. The bank’s communication will reveal clearer insights on the policy path this year.
USD awaits NFP and Powell’s Testimony
The US Dollar hit a 20-month high at 97.7 as the Ukrainian crisis stimulated demand for safe havens and growing expectations of multiple rate hikes this year. Fed Chair Jerome Powell is scheduled to testify on the Semi-Annual Monetary Policy Report before the congress. His comments will be watched carefully as direct clues on the Fed’s policy decisions later this month. The Federal Reserve committee will conclude its two-day meeting on March 16th and is widely expected to announce QE ending and raise rates by 25-50 basis points.
On Friday, the latest Non-farm Payroll report will be released. The economy is anticipated to add 400 thousand jobs in February, while unemployment is expected to tick down from 4% to 3.9%. USD traders will also keep an eye on wage growth to see how surging inflation is affecting the labor market.
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