3 April 2023

Weekly Outlook - NFP Expected to Show Jobs Market Remains Tight

Technical Analysis

Markets returned to having confidence in the banking sector as expectations grew of a "one and done" rate trajectory for the Fed. Focus is now on NFP to see if the Fed has room to ease up on the tightening.

3 Top Stories for the Week Ahead

  • NFP Expected at 250K, with a slight decrease in the unemployment rate

  • RBA expected to hold rates steady 

  • RBNZ expected to hike by 25bps

NFP Expected to Come Down as Unemployment Ticks Lower

Analysts anticipate that the U.S. created 250K jobs in March compared to the 311K reported for February, which was a beat of expectations. Despite job cuts in the tech sector, the latest BLS report showed nearly twice as many job openings as people looking for work. Meanwhile, the unemployment rate is expected to improve to 3.5%, below the 3.6% reported last time, as the participation rate is expected to fall by a similar proportion.

If numbers come in positive, it could support USD/JPY towards 135.48, which is suspected to be where a potential breakout of the descending channel occurs. Above there, bulls could focus on 137.95 next. If the job figures disappoint, though, the pair could reverse towards the bottom of 129.63, potentially opening the door to 127.18.

Tradingview Chart: U.S. Dollar / Japanese Yen

RBA Expected to Keep Rates Unchanged

After February inflation came down, the RBA has more room to pause rate hikes, especially after it expressed concern over bank liquidity conditions. This would be the second time, after the unexpected slowing of rate hikes in September in response to liquidity conditions in the wake of the U.K.'s 'mini-budget'. However, the consensus for a pause is relatively shaky, and there is a substantial minority of economists expecting a quarter-point hike.

If the RBA hikes, markets could see it as risk-positive for the Aussie, positioning for a leg towards 0.6860 should 0.6788 gives way. On the flip side, breaking outside the ascending channels would expose the low of 0.6562, with additional bets clearing the path towards the round 0.65 support. Price action suggests the pair is in a corrective mode, hinting at further declines even after an upward spike.

Tradingview Chart: Australian Dollar / U.S. Dollar

RBNZ Expected to Hike by 25bps
With the latest inflation reports showing that core prices just keep on rising, there is a unanimous consensus among economists that the RBNZ will hike by a quarter of a point and signal that further hikes would be coming unless there is a change in the data. The futures market is currently pricing in a terminal rate of 5.25%, 50bps above the current rate. 

Kiwi has been struggling to get higher, with the recent attempts resembling some sort of sloppy sideways reaction, which is rather non-directional. The resistance at 63 cents appears strong, and prices are near the bottom end of the ascending channel, spelling an imminent breakout. Losing  0.6080 on a dovish RBNZ could see the downside leg extend towards, if not below, the 60-cent barrier. Otherwise, moving past the local top could inspire longs towards the ceiling of 0.6390.

Tradingview Chart: New Zealand Dollar / U.S. Dollar

Top stories last week and how related assets fared 

  • First Citizens bought up the assets of defunct SVB in an FDIC-backed deal that helped reassure markets and boost banking stocks.

  • White House downplayed the potential of a rapid replenishment of the Strategic Petroleum Reserve, and exports from Iraq through Turkey were temporarily suspended, supporting crude prices

  • Reports circulated that Fed Chair Powell had suggested to members of Congress that there would only be one more rate hike this cycle, with the dollar index trending lower through the week.

  • The Fed was seen reversing some of its latest Q.T., putting downward pressure on treasury yields and keeping a cap on gold prices.

Major Calendar Events 03-07 April (GMT) 

Source: Investing.com

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