The Ides of March (March 15) came to be known for events (eg the assassination of Julius Caesar in 44BC) that shook up the status quo. Will a very busy week ahead put recent FX market trends to the test?
It seems that the first victim of the Ides of March week has been the hitherto resilient AUD, which suffered at the hands of weak Chinese March trade data overnight. The release could pave the way to a potentially disappointing Q1 GDP print on Wednesday (market looking for 7% YoY, CA for 7.1% YoY) and add to concerns about global growth. Next to Chinese data, Australian labour market releases on Thursday will attract some attention with continuing gains in employment and stable unemployment rate offering some support for AUD.
USD remained in demand at the start of the week as investors continue to add to bets on earlier stimulus removal after the more balanced March Fed minutes. Date this week - retail sales on Tuesday (expected rebound), IP on Wednesday (expected renewed weakness) and March CPI (no change expected in the annual inflation prints) - as well as Fed speakers could strengthen or weaken the case for a June hike. In our view, it would take more upbeat Fed assessment and stronger CPI print to see USD extending its gains on a sustained basis.
EUR remains dangerously close to recent multi-year lows. Ahead of the ECB on Wednesday investors could remain wary of any Draghi remarks on further depo rate cuts that could weigh on EUR some more. That said, we expect no changes in ECB policy or constructive economic assessment. EUR lost ground recently also on the back of growing market concerns about Greece with media reports suggesting that Athens has until early next week to submit an improved reform proposal. The uncertainty could linger and keep EUR vulnerable.
GBP lost a lot of ground of late as a combination of pre-election uncertainty and not so stellar economic data weighed on sentiment. Ahead of the UK CPI and labour market data this week, we reckon that positive data surprises could help the pound consolidate to a degree.
CAD consolidation came to a halt at the start on the new week. Investors could remain rather cautious on CAD-outlook ahead of the BoC on Wednesday. We expect the bank to keep rates unchanged but downgrade its economic outlook.
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