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Week Ahead: Quiet calendar puts hawkish rate bets into spotlight

April 03,2022 12:38:04

The war is dragging on with more peace talks set for this week. Central bankers appear increasingly open to front-loading rate hikes in order to tame rampant inflation. In fact, markets are pricing in two back-to-back 50bp rate hikes by the Fed at its next meeting in May and June.

This was bolstered by another very solid NFP report and a dollar which bounced off last month’s support. The DXY is bang in the middle of the recent range and may be governed by the Ukraine crisis with only tier-two data on the calendar in the coming few days.

Energy price volatility should also continue with crude potentially testing the March lows. This would see commodity currencies on the backfoot until the impact of last week’s US oil reserve release is fully absorbed. But this is really a short-term fix to the supply shock and so a more prolonged downtrend in commodity-$s is not expected.

Major risk events of the week

5 April 2022, Tuesday:

-RBA Meeting: Consensus sees no change to policy measures. The focus will be on any shift in language in the statement. Inflation is now back in the target band and the unemployment rate will soon move below 4%. Markets expect a rate hike at every meeting from June, along with a 40% chance of a move in May. AUD/USD is consolidating around 0.75 with strong resistance at 0.7555.

6 April, Wednesday:

FOMC Minutes: After the first quarter point rate increase since 2018, the Fed signalled bigger moves are firmly on the table. Discussions around the rate path for 2022 will be watched. Analysts say plans on shrinking the balance sheet and a start date for quantitative tightening may emerge. Dollar bulls are targeting 99 and above in the DXY, which would equate roughly to 1.10 in EUR/USD.

7 April 2022, Thursday:

ECB Meeting Accounts: The ECB caught many by surprise by confirming that it still intends to end its emergency bond buying programme (PEPP) by the end of the month. It also said QE would no longer be open-ended. HSBC expects the minutes to shed more light on how quickly the governing council will move towards policy normalisation.

8 April 2022, Friday:

Canada Employment: Employment growth is expected to slow after the blockbuster job gain in February easily beat expectations and more than wiped out January’s decline. The unemployment rate dropped below its pre-pandemic level for the first time. The BoC is widely expected to hike rates again this month with a possible 50-basis point move. Last week saw a false breakdown in USD/CAD through support at 1.2453. Resistance is 1.2590.

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