Week Ahead in FX (Apr. 3 – 7): RBA and RBNZ’s Interest Rate Decisions Plus U.S. NFP Reports

The RBA and RBNZ are kicking off another round of interest rate decisions this week! Will we see a rate hike pause?

Meanwhile, we’ll see updated U.S. labor market numbers when a couple of PMIs, the ADP report, and the closely watched NFP data are released.

Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!

And now for the closely-watched potential market movers on the economic calendar this week:

Major Economic Events:

RBA’s policy decision (Apr 4, 4:30 am GMT) – Given that Reserve Bank of Australia (RBA) members agreed to “reconsider a pause at the following meeting” in March, and that Australia’s inflation decelerated in February, traders now see a rate hike pause in April.

All eyes will be on whether the pause marks the “peak” in the rate hike cycle or if the RBA is expecting more in the foreseeable future.

Don’t miss the central bank’s growth, inflation, and employment expectations so you can get clues on the RBA’s interest rate biases!

RBNZ’s policy statement (Apr 5, 2:00 am GMT) – A surprise GDP contraction in Q4 2022 and falling house prices might make the Reserve Bank of New Zealand (RBNZ) think twice about further interest rate hikes.

On the other hand, New Zealand’s labor market remains uber tight and “soft” data such as business surveys suggest the economy can handle higher interest rates. This is why traders expect RBNZ to go for a middle ground, which is a 25 basis point rate hike to 5.00%.

Like with the RBA, the markets will speculate on a “peak” rate for RBNZ. Some believe 5.00% should do it after a 450 bps increase since late 2021, but it will really depend on what data points the RBNZ will take a closer look at.

NFP-related updates – Another week, another chance to speculate on the Fed’s next policy move! Early business surveys and relatively low applications for unemployment are traders to price in 200K to 240K non-farm payrolls (NFP) and the unemployment rate staying at 3.6% in March.

Keep close tabs on wage growth, which may have accelerated from 0.2% to 0.3% on a monthly basis and could fuel inflation concerns.

Easing employment conditions will fuel “peak rate” speculations for the Fed and likely weigh on USD against its riskier counterparts. Upside surprises, on the other hand, would give the Fed more room to return to rate hikes or at least delay rate cuts beyond early 2024.

Leading indicators like the ISM manufacturing PMI (Apr 3, 2:00 pm GMT), JOLTS job openings (Apr 4, 2:00 pm GMT), the ADP report (Apr 5, 12:15 pm GMT), and the ISM services PMI (Apr 4, 2:00 pm GMT) should give us more clues on the NFP numbers ahead of the Friday release.

Speaking of Friday, the U.S. markets are closed for the Good Friday holiday. This means that we could see higher volatility among USD pairs amidst thinner trading volumes.

Forex Setup of the Week: NZD/USD

NZD/USD 1-hour Forex Chart by TradingView

RBNZ’s policy decision later this week got me taking a closer look at NZD/USD and its uptrend on the 1-hour time frame.

As you can see, the pair is retesting a trend line support that NZD bulls and bears have been respecting since early March. Not only that, but Stochastic‘s “oversold” signal is supporting a possible trend continuation.

Let’s see if the trend extends or bends this week.

Markets see the RBNZ raising its rates by 25 basis points to 5.00%. And, unlike with the RBA, the RBNZ has fewer concerns over extending its tightening cycle. We could still see a hawkish bias from the central bank despite a surprise GDP contraction in Q4.

On the other side of the trade, more traders are pricing in the end of the Fed’s rate hike cycle.

Unless we see surprisingly strong U.S. labor market numbers, last week’s risk-friendly, anti-USD trends could continue.

We could see NZD/USD bounce from its ascending channel support and revisit previous areas of interest like .6250, .6270, or .6300.