Market outlook for the week of 16th-20th March

It will be a busy week for the FX market in terms of economic events, starting with Canadian inflation data on Monday. Tuesday, the highlight will be the RBA monetary policy announcement while the U.S. will publish pending home sales m/m data. Wednesday brings the BoC monetary policy announcement, the U.S. PPI m/m release and the highly anticipated FOMC meeting. New Zealand will also publish its GDP q/q data. Thursday will be particularly eventful with monetary policy announcements from the BoJ, SNB, BoE, and ECB. Australia will release its employment change figures and unemployment rate; the U.K will publish labour market data, including the claimant count change, average earnings index 3m/y and the unemployment rate; while the U.S. will publish new home sales data. Finally, on Friday, Canada is scheduled to release its retail sales data. The consensus for Canadian CPI m/m is 0.7% versus 0.0% previously. Median CPI y/y is expected to ease from 2.5% to 2.4%, trimmed mean CPI y/y is projected to remain unchanged at 2.4%, and common CPI y/y is forecast to decline from 2.7% to 2.6%. This inflation release comes ahead of the BoC meeting, but it is unlikely to influence the Bank’s decision on Wednesday, as policymakers are in a wait-and-see mode. Headline inflation is expected to edge down toward the 2% target. Analysts at RBC note that recent inflation readings have been somewhat distorted by base effects. Last year’s temporary GST/HST tax holiday lowered prices at the time, while the removal of the consumer carbon tax from energy prices last April continued to suppress year-over-year energy costs. Core inflation measures have cooled to around 2.5%, largely reflecting slower shelter price growth, though services inflation excluding housing was still above 3% in January. Some price pressures persist, with grocery prices rising to almost 5% y/y. Labour market data showed mixed signals after recent job losses and a slight rise in unemployment to 6.7%, although overall conditions remain relatively stable. At this week’s meeting the BoC is widely expected to keep its policy rate unchanged as they wait for more data. Ongoing uncertainty around USMCA-related trade risks is an argument for patience but the tone may shift compared with recent meetings. Even though some analysts argue that additional rate cuts are a possibility due to the recent surge in oil prices, the balance of risks now looks more neutral. Overall higher energy prices tend to be more supportive for Canada when it comes to income and activity, but the concern is that they’re keeping inflation pressure elevated, Wells Fargo analysts said. There’s been progress on inflation with core inflation gradually cooling, but rising energy costs could push headline as well as expectations higher. At the same time, Canada’s energy exposure provides some cushion for growth compared with other advanced economies, reducing downside risks. At this week’s meeting, the RBA is expected to deliver a 25 bps rate hike, lifting the cash rate to 4.10% from 3.85%. Recent remarks from RBA officials suggest that policymakers remain concerned about limited supply capacity and the persistence of domestic inflation. Keeping inflation expectations under control remains a priority, and the recent surge in global energy prices adds another layer of pressure on the RBA to act without delay, Westpac analysts said. If delivered, the March move would likely be followed by another 25 bp hike around May, bringing the total additional tightening to 50 bps and pushing the cash rate back toward its post-pandemic high of around 4.35%. At this week’s FOMC meeting, the Fed is widely expected to keep interest rates unchanged while emphasizing concerns about a potential stagflationary environment. Policymakers will have to navigate a more uncertain outlook, as rising energy costs and persistent inflation risks complicate the case for further rate cuts. Traders will closely watch the updated Summary of Economic Projections, which is likely to reflect a more challenging macroeconomic backdrop. Officials are expected to raise their inflation forecasts, lower their growth projections and slightly increase their unemployment expectations. However, these opposing forces may largely offset each other, leaving the projected path for interest rates broadly unchanged. Wells Fargo analysts still expect two 25 bps rate cuts in June and September. The Fed is also likely to signal a gradual slowdown in the balance sheet runoff, although the impact on longer-term yields is expected to remain limited. That said, Scotiabank notes that a hold decision will likely have dissenters, such as Miran and, possibly, Waller, based on labor market softness. Also markets will wait to see how the change in Fed leadership will play out given Trump’s repeated calls for lower rates. In New Zealand, the consensus for GDP q/q is 0.4% compared to 1.1% previously. Growth is expected to moderate, with the expansion likely to be modest but relatively broad-based across several industries. Analysts at Westpac note that earlier releases were clouded by distortions and volatile data, and this week’s figures should provide a clearer picture of the underlying economic momentum. That said, the data points are a lagging indicator and the outlook has become more uncertain in recent weeks. Rising geopolitical tensions in the Middle East and the associated pressure on energy prices could pose new challenges for the economy just as the recovery was beginning to gain traction. Australia’s February labour market report is likely to show steady but moderate improvement. The consensus for employment change is 20.3K versus 17.8K previously, while the unemployment rate is expected to remain unchanged at 4.1%. While job data was volatile late last year, recent trends suggest hiring is stabilizing as the earlier slowdown in “care economy” roles fades and employment in consumer services, construction and business services gradually strengthens. Overall, job growth appears to be moving off its earlier lows, although the pace remains measured. Business survey indicators also point to a gradual improvement rather than a sharp rebound. Recent declines in the jobless rate have largely been driven by lower participation rather than a strong surge in hiring. With the participation rate likely to hold around 66.7% in February, the unemployment rate is expected to remain broadly stable. At this week’s meeting, the BoJ is expected to keep its monetary policy unchanged, although rate hikes remain on the table for later this year. While recent yen movements and market speculation have kept the possibility of action alive, policymakers are more likely to use this meeting to reiterate their gradual path toward policy normalization. Economic activity in Japan has shown some improvement, reflected in both manufacturing and services indicators. However, household demand remains somewhat fragile, as real wages are only slowly stabilizing. Inflation has also improved, but readings from underlying measures remain around the BoJ’s target, giving officials confidence that price dynamics are broadly aligned with their objectives. Currency movements and bond market volatility remain important considerations. The Bank is wary that prolonged policy inaction could put renewed pressure on the yen and weaken policy credibility. Still, with the currency trading in a relatively stable range recently and financial markets calmer, there is less urgency for immediate tightening. A rate hike later this year remains possible, although the BoJ is unlikely to move earlier unless the yen weakens significantly or inflation from wages and services strengthens further. For now, a hawkish hold could provide some near-term support for the yen, although the wide U.S.–Japan rate differential continues to weigh on the currency, Wells Fargo analysts said. The Swiss National Bank is expected to keep rates at 0.00% on Thursday, maintaining its zero lower bound (ZLB) stance. February inflation came in slightly firmer than expected but remains broadly in line with the bank’s forecasts. The main focus remains the strength of the Swiss franc and the potential impact of rising energy prices on inflation. While tensions in the Middle East have lowered the threshold for possible intervention, there are no clear signs that the SNB is actively stepping into the FX market. The Bank of England is also expected to keep rates on hold at this week’s meeting as policymakers assess the current uncertainty and maintain a wait-and-see approach. Some analysts had expected a rate cut, but that now appears less likely. The meeting is expected to be uneventful, with no new forecasts or press conference, meaning guidance will likely remain neutral and flexible. The BoE is likely to keep its options open while monitoring how external risks evolve. Despite the pause, the broader easing cycle is not considered finished. The weak growth highlighted by January’s soft GDP data and the still-elevated unemployment rate suggest that cuts are still likely, potentially in the second and third quarters to bring the rate down to around 3.25%. However, if geopolitical tensions persist and energy prices remain high, the BoE may delay those cuts. The European Central Bank is also expected to keep its policy rate unchanged while updating its forecasts. Recent inflation data surprised to the upside, driven mainly by stronger services inflation, persistent increases in food prices, and a smaller drag from energy. The latest rise in energy prices is likely to complicate the outlook. Staff projections are expected to show notable upward revisions for 2026. Although economic activity has proven more resilient than feared, confidence remains fragile due to geopolitical tensions, trade uncertainty and energy market volatility, Wells Fargo said. The ECB is likely to signal greater vigilance, potentially dropping its long-standing wording that policy is “in a good place,” while still keeping immediate action off the table. The bias has shifted away from further cuts, but if energy prices remain elevated, the risk of tightening later in the year could increase.
This article was written by Gina Constantin at investinglive.com.

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