Week Ahead in FX: G20, RBA and NFP Will Start a Volatile Month

The Outcome of the G20, Central Banks Back in Action and US Employment Will Kick Off March

February was supposed to be a quiet month. As quiet as you can get in the forex market but with most major central banks taking the month off and the Chinese New Year holiday the expectation was for a less hectic month after an eventful start of the year. It turned out this February was the most volatile in six years for currencies according to data from Bloomberg. While the various holidays did slow the market along with less active central banks, there were other events that more than made up for it raising volatility..

The drop in oil prices at the beginning of the year had commodity-exporting nations scrambling with no end in sight to the oversupply that is far outstripping a lower global energy demand. The Organization of the Petroleum Exporting Countries (OPEC) and Russia after an on-again-off-again period seemed to have reached a tentative agreement, which will be discussed in the middle of March. The freeze of oil output has turned around the price of oil and most analysts are forecasting price stability. Volatility concerns remain given the mercurial nature of the producers involved in the deal and their own goals that could jeopardize a final agreement.

The tumble of oil prices, the slowdown in emerging markets and monetary policy are the main topics of the G20 meeting in Shanghai. This week will bring to life those factors as China releases its PMI data on Monday, February 29 at 8:00 pm EST, later that same day the Reserve Bank of Australia will issue its rate statement at 10:30 pm EST. The Australian benchmark rate is expected to remain unchanged at 2.00%. Employment data out of the U.S. will begin rolling out on Wednesday, March 2 at 8:15 am when the ADP Payrolls are published. The week will close with the biggest indicator in the currency market the U.S. non-farm payrolls (NFP) due on Friday, March 4 at 8:30 am EST.

The USD gained against most majors with the biggest gains coming against the British pound that stumbled due to Brexit fears. The USD gained 1.79 percent versus the EUR, the JPY 1.07 percent, the GBP 3.71 percent and the AUD –0.27 percent. The Aussie was the sole loser as oil prices boosted commodity prices that saw the CAD jump 1.63 percent versus the USD and the NZD 0.22 percent.

During February a lot of non scheduled events came to fold as Brexit anxiety reached a higher pitch, the frozen oil output got thawed and frozen again all of this with the old driving factors not resolved: The economic transition in China to a different growth model, global energy demand falling, central bank actions and consequences. The month of March is full of economic releases and central bankers are expected to make market moving decisions as they try to steer the economies they steward back into growth.

US Employment to Make Case for Economic Recovery

The U.S. non farm payrolls (NFP) came in under the anticipated 189,000 new jobs in January. Although it disappointed with a 151,000 jobs added (still showing a positive trend) the USD rallied as average hourly earnings gained more than estimated at 0.5 percent. As the U.S. nears full employment as per the headline employment figures the Fed diversified their focus to look at other employment indicators that could shed a positive light on inflation. While there have been more jobs, wages have not kept up with that growth. The unemployment rate also managed to drop to 4.9 percent to an 8 year low.

The February NFP report is forecasted to show a gain of 195,000 jobs, with a more modest 0.2 percent gain in average hourly earnings and the unemployment rate to remain at 4.9 percent. The U.S. Federal Reserve still relies on the employment component as the sturdiest pillar of their claim of a moderate recovery of the U.S. economy. A weaker than expected NFP could put the a rate hike by the Fed totally out of the question. As it stand the Fed is not expected to change its benchmark rate given the global economic conditions that worsened in 2016. A strong NFP number alone dos not have the power to put March back into the mix, but it could boost the number of rate hikes priced in by the market.

FX market events to watch this week:

Monday,February 29
7:30 pm AUD Building Approvals m/m
8:00 pm CNY Manufacturing PMI
8:45 pm CNY Caixin Manufacturing PMI
10:30 pm AUD Cash Rate
10:30 pm AUD RBA Rate Statement
Tuesday, March 1
4:30 am GBP Manufacturing PMI
8:30 am CAD GDP m/m
Tentative NZD GDT Price Index
10:00 am USD ISM Manufacturing PMI
7:30 pm AUD GDP q/q
Wednesday, March 2
4:30 am GBP Construction PMI
8:15 am USD ADP Non-Farm Employment Change
10:30 am USD Crude Oil Inventories
7:30 pm AUD Trade Balance
Thursday, March 3
4:30 am GBP Services PMI
8:30 am USD Unemployment Claims
10:00 am USD ISM Non-Manufacturing PMI
7:30 pm AUD Retail Sales m/m
Friday, March 4
8:30 am CAD Trade Balance
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Trade Balance
8:30 am USD Unemployment Rate

*All times EST