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MONTHLY MARKET INSIGHTS
M A R C H 2 017
USD
M O N T H LY M A R K E T I N S IG H TS
MARCH MARKET REVIEW
THE MONTH AHEAD
The U.S. dollar index fell to its lowest level in nearly
five months amid fading optimism that a Trump
Administration, even with control of Congress, will be
able to deliver on campaign promises for bold tax cuts
and infrastructure spending.
The failure of the Trump Administration to pass the
GOP healthcare bill due to a lack of support from
both conservative and more moderate Republicans
suggested that tax reform or infrastructure bills sailing
through the legislative process may be much more of a
challenge than previously hoped.
The Fed’s third interest rate hike in a decade this month
didn’t do the dollar any favors as it was accompanied
by a less hawkish than expected guidance on the
outlook for rates going forward.
Broadly, the unwinding of the “Trump reflation trade”,
which had seen the dollar, equities and Treasury yields
soar in the wake of the November election, saw the
dollar, yields and equities tumble while traditional
safe harbors like the yen, the Swiss franc and gold all
jumped higher.
As is the case for most months, the payrolls report will
headline the U.S. economic calendar, with March’s report
expected to show another very solid month of job gains.
However, without a meaningful uptick in wages, the outlook
for the Fed to raise rates two more times this year may not
be meaningfully impacted.
Following the GOP healthcare bill debacle in late March,
investors will be paying increasing attention to the political
landscape. Any signs that the administration and more
broadly, the Republican Party are hungry for a big victory on
tax reform would likely support the dollar.
CPI and other inflation gauges will continue to take center
stage. The Fed’s view that inflation pressures are beginning
to mount has only partially been validated by economic
reports. Consequently, any indication that prices are rising
could push up the odds of a fourth interest rate hike in 2017
and would likely support the greenback.
USD INDEX MARCH
102
101
100
Fed speakers throughout the month of April and the minutes
from the Fed’s March meeting that will be released early in
the month will also be closely watched by a market that is
still trying to gauge whether rates will rise a total of three or
possibly four times in 2017.
99
KEY MARKET EVENTS
APR 4
FEBRUARY TRADE BALANCE
APR 14
MARCH CPI
APR 5
APR 28
MARCH ISM SERVICES SECTOR
Q1 GDP
(ADVANCE)
APR 7
MARCH EMPLOYMENT REPORT
EUR
M O N T H LY M A R K E T I N S IG H TS
MARCH MARKET REVIEW
THE MONTH AHEAD
The euro jumped to its highest level in nearly five months
against the struggling greenback late in March after the
Trump Administration’s failure to pass a GOP healthcare
bill fanned doubts about the president’s ability to follow
through on campaign promises for bold fiscal stimulus.
The ECB’s Governing Council meeting in late April will
be especially closely watched for any additional clues
that monetary policymakers are inching closer to a
more normal policy stance. Any indication that inflation
pressures are seen as less transitory could signal that
an interest rate hike, while far from imminent, is getting
closer.
The single currency firmed earlier in the month after the
European Central Bank expectedly made no changes
to monetary policy but did discuss possibly raising
borrowing costs before it winds down its money printing
operations at the end of this year.
The first round of Frances presidential elections in
late April will also be very closely watched by market
participants following the Brexit and Trump victory from
last year. A stronger than expected showing by farright Marine La Pen ahead of May’s run-off vote could
seriously undermine confidence in the euro.
Economic data out of the 19-member bloc has bolstered
the view that the ECB is slowly moving away from its
hyper-accommodative monetary policies and shifting to
a more neutral stance. Rising inflationary pressures, solid
growth as highlighted by euro zone PMI data and steadily
improving gauges of sentiment have all underpinned the
single currency.
EUR/USD MARCH
1.09
1.08
German and broader euro zone inflation figures late
in the month will be analyzed for further evidence that
deflationary threats have dissipated and that a more
neutral policy stance by the ECB may not be as far off as
investors had expected.
European political uncertainty became less of a headwind
for the euro this month following a Dutch election that saw
the moderate incumbent prime minister easily fend off a
challenge from the far-right and polls showing France’s
far-right La Pen trailing the centrist candidate.
While the Brexit has had a limited impact on the euro
since the historic referendum in June 2016, the triggering
of Article 50 earlier this month and the increasing focus
on the uncertainty associated with the negotiations could
start to more meaningfully weigh on the euro.
1.07
1.06
1.05
KEY MARKET EVENTS
APR 7
APR 27
FEBRUARY GERMAN TRADE BALANCE
ECB GOVERNING COUNCIL MEETING
APR 11
APR 28
APRIL GERMAN ZEW FORECAST
APRIL FLASH CPI
APR 23
FIRST ROUND OF FRENCH PRESIDENTIAL ELECTION
JPY
M O N T H LY M A R K E T I N S IG H TS
MARCH MARKET REVIEW
THE MONTH AHEAD
The Japanese yen jumped to a four and a halfmonth peak against the broadly weaker dollar late
in March following the failed healthcare bill and the
resulting doubts about the Trump Administration’s
ability to deliver on promises for bold tax cuts and
infrastructure spending.
The Japanese economic calendar, while important, will
likely continue to take a backseat to broader moves
in global financial markets and in particular, to moves
across global bond markets. A sustained move higher
in U.S. bond yields on any hawkish commentary from
the Fed, strong U.S. data or improvement in the outlook
for fiscal stimulus should send USD/JPY higher.
Doubts about the outlook for fiscal stimulus from
the U.S. government sent Treasury bond yields
plummeting to one-month troughs on both the 10year and two-year bonds. The unwinding of the
“Trump reflation trade” was particularly damaging to
the greenback against the yen.
Nervous global financial markets that continue to focus
on U.S. fiscal policy uncertainty, the Brexit as well as
upcoming elections in the euro zone could keep the
relative safety of Japanese assets in high demand for
investors.
More broadly, investors dumped riskier assets that
had performed so well since the U.S. election in
November .The resulting flight to safety across global
financial markets boosted the value of Japanese yen
assets.
The Bank of Japan meeting around the end of April is
not expected to yield any changes to monetary policy
but should see the BOJ reiterate it commitment to
keeping Japanese government bond yields anchoreda scenario that could limit JPY upside against the dollar.
The Japanese fiscal year-end of March 31st tends
to see increased flows back into the country by
firms repatriating capital to boost the value of their
overseas earnings. The seasonal flows added to the
yen’s improved tone in March.
The quarterly Tankan survey of large manufacturers’
sentiment in early April will be closely watched as it us
usually seen as a relatively good indicator for capital
expenditures and the overall performance in the world’s
number three economy. Any strength in the data could
limit the yen’s downside.
USD/JPY MARCH
115
114
113
112
111
110
KEY MARKET EVENTS
APR 2
Q1 TANKAN SURVEY
APR 11
APR 27
BANK OF JAPAN MONETARY POLICY MEETING
FEBRUARY MACHINERY ORDERS
APRIL CPI
APR 19
MARCH TRADE BALANCE
GBP
M O N T H LY M A R K E T I N S IG H TS
MARCH MARKET REVIEW
Sterling firmed two a two-month high against the
broadly weaker U.S. dollar late in the month following
the failed GOP healthcare bill and the fading doubts
about the Trump Administration’s ability to follow
through with bold promises for tax reform and
infrastructure spending.
The British pound enjoyed surprising resilience for
most of the month of March, despite the looming
Article 50, which was triggered late in the month and
officially announced the United Kingdom’s intention to
leave the EU. The widely expected Article 50 news had
little impact on global markets or the pound.
The pound was supported around the middle of the
month by the Bank of England’s MPC meeting, which
resulted in no changes to monetary policy but did
see one monetary official surprisingly vote to lift U.K.
borrowing costs.
While U.K. economic data have recently painted a
picture of a less robust economy, inflation figures
have consistently moved higher since the Brexit and
the ensuing slide in the value of the pound. The rise in
U.K. CPI above the BOE’s 2.0% target for the first time
since 2013 suggested U.K. rates may be poised to rise
sooner than previously expected.
THE MONTH AHEAD
U.K. economic data this month may take a backseat to news
or headlines related to the Brexit. Increasing focus on the
upcoming negotiations, likely to begin in May, could keep
investors nervous about uncertainty related to the Brexit and
could keep the pound’s upside limited.
Unfortunately for market participants, there is no set schedule
or predetermined path for the U.K.-EU negotiations to
follow. Consequently, headline risk and political uncertainty
will likely remain key drivers of the pound’s direction over the
foreseeable future.
U.K. CPI around the middle of the month will likely headline
the economic calendar. February’s CPI rose above the BOE’s
2.0% target for the first time since 2013 and fueled some
speculation that the BOE could be inching closer to a rate
hike. Another rise in CPI could further support the pound.
The initial reading of U.K. GDP for the first quarter will also
be closely watched for broad signs that the post-referendum
resilience in the U.K. economy is fading ahead of the looming
uncertainty of the Brexit negotiations. Any broad slowdown
in growth in Q1 could play up the idea that there remains
considerable risk to the U.K. economy and undermine the
pound.
GBP/USD MARCH
1.26
1.25
1.24
1.23
1.22
1.21
KEY MARKET EVENTS
APR 5
MARCH PMI SERVICES SECTOR INDEX
APR 21
MARCH RETAIL SALES
APR 11
APR 28
Q1 GDP
MARCH CPI
(ADVANCE)
APR 12
MARCH EMPLOYMENT REPORT
CAD
M O N T H LY M A R K E T I N S IG H TS
THE MONTH AHEAD
MARCH MARKET REVIEW
A roller-coaster month for the Canadian dollar saw the
loonie slide to a two and a half-month low in mid-March
along with the drop in crude oil, jump to a three-week high
following a very strong read of full-time hiring in February,
then fall to near a two-week low toward the end of the
month.
The Bank of Canada this month is not expected to
make any changes to monetary policy. The market
will however, be watching closely for any shift in the
Bank’s cautious tone. Given the recent pullback in
inflation from January’s levels, any improvement in the
bank’s tone would be seen as surprise.
Uncertainty associated with the Trump Administration’s
ability to pass important legislation on tax reform and
infrastructure spending sent riskier assets and commodities
lower, which ketpt the loonie pressured.
U.S. developments may be as important to the loonie’s
direction as any news or events north of the boarder.
Any hints that the Trump Administration is moving
to gain a consensus among divided Republican
lawmakers on tax cuts or infrastructure spending
could send the USD higher.
A late-month rally in crude oil back above $50/barrel for the
first time in three weeks helped the Canadian dollar as well
as its commodity-bloc counterparts, jump to a one-week
high in the final trading days of March.
Canadian economic data this month once again painted
a mixed picture. While jobs growth was robust, inflation
backed off of the previous month’s levels with all three
readings of core inflation remaining below the BOC’s 2.0%
annual target. The data did little to change the tune of BOC
Governor Poloz, who sounded cautious on the economy in
a late-March speech.
Canadian inflation figures late in the month will also be
very closely watched as February saw a moderation
in prices from January’s highs. A further decline in
CPI would likely add to the BOC’s resolve to remain
cautious and could even fuel some talk of a rate cut
before the year-end.
Crude oil’s impressive rally back above $50/barrel late
in March helped lift the loonie versus the greenback.
Consequently, any sustained move in oil and
commodities higher in April should continue to limit
some of the Canadian dollar’s downside.
USD/CAD MARCH
1.355
1.350
1.345
1.340
1.335
KEY MARKET EVENTS
APR 4
FEBRUARY TRADE BALANCE
APR 21
MARCH CPI
APR 7
MARCH EMPLOYMENT REPORT
APR 26
FEBRUARY RETAIL SALES
APR 12
BANK OF CANADA MONETARY POLICY MEETING
AUD NZD
&
MARCH MARKET REVIEW
MONTHLY MARKET INSIGHTS
THE MONTH AHEAD
The Aussie enjoyed broad support for most of
the first half of March, rising to a four-month peak
against the greenback and cementing its status as
the G10’s best performing currency. The Aussie’s
allure faded into the end of March as the failed U.S.
healthcare bill and the ensuing slide in risk assets
undermined its performance.
The New Zealand dollar recovered from its lowest
level all year against the dollar in mid-March,
thanks in large part to the Fed’s less hawkish
than expected monetary policy statement and
the resulting improvement in the appeal of higher
yielding and riskier assets. Fading risk appetite into
the second half of March sent the kiwi back down
to a two-week low.
The Reserve Bank of Australia’s early March
meeting resulted in no changes to the cash rate but
the bank’s statement did all but eliminate the risk of
lower interest rates for the foreseeable future.
Depressed prices for dairy, New Zealand’s largest
export and a generally dovish policy stance by
the RBNZ have seen the kiwi underperform its
Australian counterpart from across the Tasman Sea.
Australia’s economic calendar will be headlined by the
Reserve Bank of Australia’s Policy Board meeting early in
the month. No change in rates is expected and the RBA has
recently all but squashed any expectations that lending rates
could be cut further. Another RBA statement that rules out
further monetary easing would likely support the Aussie.
New Zealand’s calendar will be headlined by the release of
Q1 CPI figures. A cooler than expected print on CPI could
fuel speculation that another cut in the bank’s cash rate may
be possible before the year-end- a broadly negative scenario
for the kiwi.
Australian CPI for the first quarter late in the month will also
be closely watched by investors for any signs that belowdesired inflation pressures could prompt the RBA to adopt
a slightly more dovish tone or renew its frustration with the
strength of the Aussie.
Macro themes like the outlook for the Fed, global bond yields
and the overall level of investor risk appetite will also be key
drivers of the performance for both the Aussie and the New
Zealand dollars. A more hawkish Fed or an improving outlook
for fiscal stimulus from Washington would likely send U.S.
yields and the dollar higher against the AUD and NZD.
AU FEBRUARY RETAIL SALES
APR 19
0.77
0.76
0.75
NZD/USD MARCH
0.72
0.71
0.70
0.69
KEY MARKET EVENTS
APR 2
AUD/USD MARCH
APR 4
NZ Q1 CPI
RESERVE BANK OF AUSTRALIA POLICY BOARD MEETING
APR 25
AU Q1 CPI
APR 12
AU MARCH EMPLOYMENT REPORT
MONTHLY MARKET INSIGHTS
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