TOP 5 EVENTS TALKING POINTS:
- The Reserve Bank of Australia’s Tuesday meeting will very likely see a 25-bps rate cut, but that is widely expected by markets, with overnight index swaps pricing in a 93% chance of a cut coming into this week.
- The June European Central Bank meeting on Thursday should see more details about the TLTRO program come to light alongside a cut in both the growth and inflation forecasts.
- May US jobs data on Friday should show ongoing strength in the US labor market.
06/04 TUESDAY | 04:30 GMT | AUD RESERVE BANK OF AUSTRALIA RATE DECISION
In the interim period since the last RBA meeting in May, rates markets have continued to pull forward expectations of a 25-bps rate cut into the first half of 2019. After the May RBA meeting, there was a 59% chance of a 25-bps rate cut in June; currently, those odds sit at 93%.
Given that market pricing is very tight as is –there is a 70% chance of a second 25-bps rate cut by September (overall, a 79% chance of two cuts in 2019) – it will take a lot for the RBA to not disappoint steep dovish expectations. When a policy decision is priced-in this far in advance, it shouldn’t be a surprise if the corresponding currency (in this case, the Australian Dollar) doesn’t respond with a significant price reaction.
Read the full report: June RBA Rate Decision & AUDUSD Price Forecast
06/04 TUESDAY | 09:00 GMT | EUR EUROZONE CONSUMER PRICE INDEX (MAY A)
The preliminary May Eurozone Consumer Price Index is due on Tuesday, just days before European Central Bank policymakers meet for their June policy meeting. According to Bloomberg News, the headline Eurozone inflation reading is due in at 1.3% from 1.7% (y/y), while the core reading is due in at 0.9% from 1.3% (y/y).
With inflation expectations falling precipitously in the past few weeks – since May 5, the 5y5y inflation swap forwards have declined by 10-bps from 1.404% to 1.291% – it’s seems highly likely that the May inflation report will not only be weak, but it will be used as the basis for more dovish policy action by the ECB at their June meeting.
Read the full report: May Eurozone Inflation Report & EURJPY Price Forecast
06/06 THURSDAY | 11:45 GMT | EUR EUROPEAN CENTRAL BANK RATE DECISION
The European Central Bank meets this week to try and shore up investor confidence. With regional PMI readings stumbling and Eurozone inflation expectations sliding lower over the past several months, calls have grown for the ECB to take more substantive action at its June rate decision and policy meeting; the timing is primarily because new Staff Economic Projections will be released this week as well.
While new stimulus is unlikely this coming week, that is solely due to the previously announced TLTRO3 program which has yet to see its details fleshed out yet. The context of disappointing economic trends otherwise may mean that this is now the opportune time for the ECB to provide clarity here, thereby helping insulate markets. If so, the Euro may not see much weakness around the ECB on Thursday.
Read the full report: June ECB Rate Decision & EURUSD Price Forecast
06/07 FRIDAY | 12:30 GMT | CAD EMPLOYMENT CHANGE & UNEMPLOYMENT RATE (MAY)
The strength seen in the Canadian labor market in recent months has helped keep rate cut expectations at bay. Two months ago, overnight index swaps were pricing in a 21% chance of a 25-bps rate cut by the end of September; now, those odds are higher at 33%. If there is going to be a 25-bps rate cut by the BOC in the next several months, overnight index swaps are favoring October 2019.
Read the full report: May Canada Jobs Report & USDCAD Price Forecast
06/07 FRIDAY | 12:30 GMT | USD CHANGE IN NONFARM PAYROLLS & UNEMPLOYMENT RATE (MAY)
The US labor market has been the pillar of stability for the US economy for several years now, and even as Q2’19 US GDP expectations look soft, the US jobs market looks poised to press forward. With the change in nonfarm payrolls report due to show headline jobs growth of 180K, there may not be much to look for in the coming labor market update. After all, the Atlanta Fed jobs calculator dictates that the US economy only needs 108K jobs per month to maintain the unemployment rate at 3.6% over the next 12-months. Given the backdrop of rates markets aggressively pulling forward Federal Reserve rate cut expectations, the upcoming May US jobs report poses asymmetric risk for the US Dollar: a bad report could hit the greenback in a significantly negative manner.
Read the full report: May US Jobs Report & USDJPY Price Forecast
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher, email him at [email protected]