The Week Ahead: March Madness

Foreign Exchange: The Week Ahead
March Madness
Share this story:
Andrew Kositkun
Andrew Kositkun
Foreign Exchange Head Trader
The Federal Reserve will hold its next policy meeting this week, and it is widely expected to keep rates on hold and reaffirm a narrative of patience across a couple different dimensions.  

Specifically, the Fed is waiting to see how the relatively tighter financial conditions and shocks to confidence have impacted the real economy.  Additionally, the Fed will be keenly interested in how the global growth trajectory evolves and when inflation will show signs of acceleration.  With all three of these variables highly uncertain due to noisy economic data, continued Fed patience appears to be the word of the moment.

The question then is exactly how patient the Fed will be.  In January, the Fed's dovish pivot included the removal of guidance for the timing and direction of its next interest rate move.  However, the Fed will not be able to hide behind this opaqueness as it will be required to submit new forecasts at its March meeting.  The markets are universally expecting the Fed dots to move down, but there remains uncertainty to the extent this will happen.  The most likely scenario is for the Fed to still forecast 1 hike (down from 2) this year and another hike in 2020.  

Of course the complicating factor to 2020 is that it is also a presidential election year.  While on paper this shouldn't matter as the Fed is apolitical and history shows that the Fed is undeterred on its policy path during election years, the current situation in Washington D.C. is anything but business as usual.  With political uncertainty likely to be at an elevated level, it's reasonable to expect that any rate hikes in 2020 will have to clear a higher than normal hurdle. 


3/20 Thailand Expectations for rates to remain unchanged at 1.75%
3/20 United States Expectations for rates to remain unchanged at 2.50%
3/20 Brazil Expectations for rates to remain unchanged at 6.50%
3/21 U.K.  Expectations for rates to remain unchanged at 0.75%
3/21 Taiwan Expectations for rates to remain unchanged at 1.375%
3/21 Switzerland Expectations for rates to remain unchanged at -0.75%
3/21 Norway Expectations for rates to rise by 25 bps to 1.00%
3/22 Russia Expectations for rates to remain unchanged at 7.75%


United States and Canada

3/19 Factory Orders Expectations for a gain of 0.3% after a gain of 0.1%
3/22 Market Manuf. PMI Expectations for a gain to 54.0 from 53.0
3/22 Existing Home Sales Expectations for a gain to 54.0 from 53.0
3/22 Canada CPI Expectations for a gain to 54.0 from 53.0


3/22 EZ Composite PMI Expectations for a gain to 52.0 from 51.9
3/19 German ZEW Survey Expectations for a decline from 15 to 13
3/22 German Manuf. PMI Expectations for a gain from 47.6 to 48.0
3/19 U.K. Jobs Report Expectations for the UR to remain at 4.0%
3/20 U.K. CPI Expectations for a gain of 0.4% after a -0.8% print

Asia/Japan, and New Zealand

3/21 Japan Nat’l. CPI YoY Expectations for a slight gain to 0.3%
3/20 Aussie Jobs Report Expectations for job gains of 15k; UR unchanged at 5.0%
3/20 New Zealand Q4 GDP Expectations for a gain of 0.6% after a gain of 0.3%



Last week, the euro found itself stronger, reversing the sharp decline from two weeks prior and bringing the euro to roughly flat over the past month.   Despite this lack of follow through on a dovish ECB, we continue to expect further euro weakness.  The ECB has signaled caution and global growth concerns still remain, both of which should pressure the euro and support the USD.  Additionally, political uncertainty around the European parliamentary elections in May represents another headwind for the euro.  


After three rounds of Brexit voting last week, the net result was a second failure from PM May to pass her Withdrawal Agreement (WA) and a vote in favor of extending Article 50.  PM May is expected to table her WA a third time this week but an extension is expected regardless of how that vote goes, with a longer one expected (possibly more than a year) should the third vote fail.  While the GBP has rallied, it is difficult to see a sustained rally absent of convincing evidence that May's WA will pass or signs that Brexit won't happen, both of which appear far off.  Until then, expect choppy trading driven by headline risk.  


The Bank of Japan left its rates unchanged last week as expected.  However, BoJ Governor Kuroda was more upbeat than expected as he expected a rebound in global growth during the second half of the year.  Given this, expectations for BoJ policy normalization this year have faded.  Opposing forces from Japanese investors being net buyers of foreign securities and suppressed global yields should keep the JPY range bound in the near term.  Positive headlines from US-China talks support market sentiment but is countered by the possibility of North Korea resuming its nuclear program. 


The CAD strengthened this past week, retracing much of its losses from the prior week.  Higher oil prices and positive risk sentiment have helped the CAD.  However, supply bottlenecks in Canada limit the upside benefit from oil prices.  Recent comments from BoC officials reaffirm that the bank isn't in a rush to raise rates anytime soon.  Near term, expect range trading but longer term, NAFTA 2.0 ratification and Canadian political uncertainties remain.  


The CNY finished last week on a positive on the back of tax cuts to address the domestic economic slowdown and constructive trade developments despite reports that the meeting between Presidents Trump and Xi has been pushed back.  While the Chinese government has been adding fiscal stimulus measures, it bears reminding that the government is against "flood-like" stimulus and much of the positive trade expectations are priced in.  Additionally, the Chinese economy remains fragile and against a backdrop of a declining current account surplus.  


The AUD reflects the push/pull nature of beneficial terms of trade against a widening interest rate differential with the US.  While the AUD benefits from positive US-China trade news, there remains risk that a trade deal could result in substitution of Australian exports (i.e. LNG) for US exports.  Moreover, building expectations for a RBA rate cut further exacerbates the interest rate differential, although it should be noted that the labor market remains robust.  For this week, sideways trading with a bias for lower seems to be order. 
If we can help you with any Foreign Exchange needs, please email or call (800) 447‑4133.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Facebook Twitter LinkedIn Google Plus YouTube
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Unsubscribe from this list  |  Update email preferences
This message has been sent to Please do not reply to this email. To ensure the delivery of future emails, please add to your email address book or safe sender list.
Copyright ©2019 City National Bank – All Rights Reserved.
350 South Grand Avenue, 12th Floor, Los Angeles, CA 90071
City National Bank is a subsidiary of Royal Bank of Canada.
Equal Housing Lender
NMLSR ID# 536994 | City National Bank Member FDIC


Popular posts from this blog

Fidelity: Bollinger band stock signal

Viewpoints: What to do after a data breach