Something for everyone this week

There’s something for everyone this week: rate decisions from the Reserve Bank of Australia and European Central Bank; the UK’s budget, and the monthly US nonfarm payrolls report, among other things. The RBA is widely expected to deliver a neutral or perhaps a slightly hawkish policy statement as there has been no significant deterioration in Australian economic data since the bank’s last meeting in February. The ECB’s policy decision will be more interesting in my view. With the Eurozone inflation climbing back to 2% and higher in some countries (e.g. Spain where CPI inflation is at 3%), Mario Draghi and his colleagues may hint at the prospects tapering of QE early. If so, this would be bullish for the euro. However, if Mr Draghi dismisses the rise in inflation as temporary then there is a possibility we may see some weakness in the single currency instead. As far as the US nonfarm payrolls is concerned, well this will be the last set of employment data ahead of next week’s rate decision. It appears as though a rate hike in the US is imminent next week. On Friday, the Fed Chair Janet Yellen echoed her colleagues’ hawkish message and more or less confirmed that interest rates would be raised. However, she also made it clear that this should not be interpreted as signalling a faster cycle of rate rises in the future. This may mean that even if the Fed does raise rate that the dollar could actually weaken after an initial spike higher, because by then (a) it could be that the move may already be fully priced in and (b) that the prospects of a longer-than-expected pause may see the buck pause for breath.