The U.S. dollar was set to end the week on a positive note after Fed Chair Jerome Powell testified twice and other Fed speakers signaled a hawkish view on the economy. The U.S. dollar had appreciated on a weekly basis up until Thursday when President Donald Trump announced a 25% tariff on steel and 10% on aluminum imports. Markets reacted to the protectionist measure with Trump unfazed by criticism and tweeting that Trade wars are good and easy to win. The decision turned a USD on the rise against major pairs into a mixed bag. The U.S.dollar is up against the AUD, CAD, GBP and NZD but depreciated against the euro and the Japanese yen.
Central Banks and US Employment Data to Guide Markets
Next week will be a rollercoaster for investors with an economic calendar that features four central banks: Reserve Bank of Australia (RBA), Bank of Canada (BoC), European Central Bank (ECB) and the Bank of Japan (BOJ) as well as the release of employment data in Canada and the United States. The U.S. nonfarm payrolls (NFP) will be published on Friday, March 8 at 8:30 am EST with another gain of 200,000 jobs expected and a wage increase of 0.3%.
The ECB will deliver its rate statement on Thursday, March 8 at 7:45 a.m. Eastern. President Mario Draghi will host a press conference at 8:30 am. There are no major changes expected to the interest rate or the quantitative easing program, but the central bank could take the opportunity to make minor tweaks to the language. The ECB will be cautious in its use of communication to avoid market overreaction. The central bank is expected to end its quantitative easing program at the end of the year, but it awaits stronger inflationary pressures before signaling the move.
The U.S. dollar/Canadian dollar (USD/CAD) currency pair gained 2.20% in the last five trading days. The currency pair is trading at 1.2907 after the Canadian currency could not deflect the one-two punch of Fed hawkish rhetoric and protectionist tariffs from the White House. Interest rates are expected to rise three to four times in 2018. Fed members have been very vocal on the subject and although it is still gradual as the moves will be for 25 basis points each, it does signal and end of low rates in the United States.
The Bank of Canada (BoC) will release its rate statement on Wednesday, March 7 at 10:00 am EST. The interest rate is forecasted to remain at 1.25% but the central bank is still expected to hike two times this year. Growth expectations are lower after a slowdown in the final quarter of 2017 was evident with the release of the Canadian GDP on Friday. Annual GDP gained 1.7%, short of the 2.0% forecast and offering little support for the struggling loonie.
Canadian jobs data will land at the same time at U.S. jobs on Friday, March 9 at 8:30 am. The U.S. nonfarm payrolls (NFP) will steal most of the spotlight as inflation anxiety has stricken stock markets around the globe. Wage growth in the United States will be key on Friday as inflation is the one factor missing that would force the Fed to raise interest rates to avoid the economy overheating.
NAFTA talks are still ongoing, but this week the steel tariffs are drawing a more dire future for the trade agreement. The seventh round will wrap up in Mexico City and so far there is very little progress. Mexico and Canada have said that they will retaliate if they fall under the steel and aluminum tariffs, but at this point as it is becoming the norm with the Trump Administration there are few details on the full scope of the tariffs.
The U.S. dollar/Japanese yen (USD/JPY) currency pair lost 1.22% in the last five days. The currency pair is trading at 105.55. The Japanese yen has been one of the biggest movers against the American currency appreciating 6.25 percent versus the greenback. The Yen has reached levels it hadn’t been trading at since prior to the US elections.
The Japanese currency was the big winner of the week that saw Fed rhetoric and trade war drive the market. The Bank of Japan (BOJ) will feature this week on Wednesday and Thursday when it releases its rate statement and a press conference with BOJ Governor Haruhiko Kuroda. The Governor has just been reappointed for a second term and on Friday hinted about ending the massive stimulus in 2019.