The fear of coronavirus is still holding the Asian market from moving higher. Therefore, New Zealand’s economy may face an adverse impact as China and Australia is its biggest trading partner. As per our expectation, RBNZ may provide a dovish tone in this week’s policy meeting. What other important events and releases will affect the market this week? Get more insights for the new trading week with AtoZ Markets’ Forex Weekly Fundamental Forecast.
10 February, 2020 | AtoZ Markets – The US economy started the New Year with more employment creation in January and bringing wages at the highest peak since the financial crisis of 2008. In January, 225,000 new jobs were created when the market expectations were 165,000. The unemployment rate is still at a historically low level of 3.6%. Moreover, average hourly wages have increased by 3.1% on a yearly basis.
Overall the US economy is dominating the overall financial market where the US Dollar is the strongest performer from the last several weeks.
Forex Weekly Outlook – RBNZ May Provide a Dovish Tone
There is only one central Bank release for this week. Despite the economic releases, New Zealand is facing difficulties due to the recent effect of coronavirus in the financial market. Therefore, there is a probability that RBNZ will provide a dovish tone. Moreover, after the better, than expected US NFP, investors will see retail sales and monthly CPI.
Recent data of the Eurozone has been positive to point to a soft rebound in economic activity this year. However, it is not the right time to say that the Eurozone economy has started to rebound. Moreover, the price of the Euro is near four-month low against the US Dollar. There are some important releases this week that are expected to show hints about the future price direction of EURUSD.
The week will start with the Eurozone Sentix index for February on Monday, followed by the industrial production figures of December on Wednesday. Later on, the second estimate of fourth-quarter GDP growth is expected to be released on Friday, along with quarterly employment numbers. Currently, no revision may flash GDP reading of 0.1% quarterly growth.
On the other hand, the US labor market maintains its development strongly. In January, 225,000 new jobs were created when the market expectations were 165,000. The unemployment rate is still at a historically low level of 3.6%. Moreover, average hourly wages have increased by 3.1% on a yearly basis. The labor force participation rate has also increased marginally to 63.4% in January from the previous data of 63.2%.
Overall the EURUSD outlook is still expected to remain bearish for this week. However, any better than expected European data may alter the scenario.
The UK is going to have a busy week with several important releases. On Tuesday, the GDP growth of the final 3 months of 2019 is going to be released. Moreover, investors will see industrial outputs and trade figures for December.
The UK economy has started a recovery mode in January after the decisive election outcome in December. However, the Bank of England has put more weight on the related PMI, which showed a strong rebound in January. Therefore, policymakers made one step back from cutting interest rates. The economic releases for this week will take part as an important role for policymakers to indicate further about the interest rate decision. Any worse-than-expected results might push up the odds of a BoE to cut interest rates in the coming months.
On the other hand, after the massive growth in the employment section, the US economy has several important releases this week, which includes the Retail Sales and Consumer Price Index.
The week will start with JOLTS job openings on Tuesday and the consumer price index (CPI) on Thursday. Currently, the CPI inflation formed a divergence between the Fed’s preferred inflation metric, PCE inflation. The headline inflation is expected to edge up further in January to 2.4% year-on-year. However, the core rate may moderate slightly to 2.2% y/y.
Another important release for the US economy is the retail sales figures that are expected to release on Friday. Currently, retail sales may increase by 0.3% month-on-month in January.
Overall, the GBPUSD price may dominate by the US Dollar. Therefore, any better than expected US Data may push the price more down.
After a pickup in GDP growth and inflation at the end of 2019, the RBNZ has less possibility to ease the policy over the next few months. Currently, it has a cut in the official cash rate by 75 basis points in the past year. Moreover, new headwinds about the coronavirus and Australian bushfires may slow down the growth in China and Australia. As both countries are close trading partners of New Zealand, the RBNZ may adopt a more cautious tone.
Therefore, RBNZ may provide a dovish tone in its quarterly Monetary Policy Statement on Wednesday. At that time, the New Zealand dollar may come under the firing line. The kiwi is moving down against the US Dollar from the beginning of this year, and there is no sign of rebounding. Therefore, investors may expect that the current rate cut by RBNZ is not done yet.
Therefore, the dovish tone may create a bearish rally in the NZDUSD this week. Besides this, the US economy is quite strong compared to New Zealand. Therefore, any better than expected US Data can drag the price down as well.
A decrease of coronavirus infection makes the Japanese Yen less interesting for the investors.
As we know, there is a lack of energy resources in Japan. Therefore, Japan mostly depends on other countries for energy resources. After blocking several power plants, Japan has to depend on external sources for petroleum products. Therefore, any increase in energy prices may weaken the Japanese Yen.
As we know, the Oil market is facing volatility due to the OPEC+ committee’s decision about oil production. Moreover, Beijing’s decision to reduce duties on US goods may affect oil prices.
All these activities have affected the growth of the USDJPY pair to move towards the 110 yen per dollar last week. 60% of experts expect that the USDJPY may continue to grow further. However, any weaker than expected US data along with the increase of coronavirus infection may encourage investors to buy Japanese Yen.
The coronavirus is still keeping the oil market down. Despite a small bullish pressure in prices towards the end of the week, there is no sign of price reversal yet. There was hope in developing the vaccination of the coronavirus. However, the process may take six to eight months’ time to complete the vaccination testing that puts extra pressure on the Oil market. Moreover, the coronavirus affected people is increasing massively beyond China.
On the other hand, OPEC+ may agree to cut output by another 600,000 barrels a day in response to the eroding effect of the coronavirus. In the meantime, China’s oil demand has dropped by 1.4m bbl/d since the outbreak started.
On the other hand, Libya has temporarily lost almost 75% of its production in the middle of January as Commander Khalifa Haftar blocked ports and fields in some parts of the country. This week, investors may see some movement in the status of tribal leaders loyal to Haftar for unblocking the oil fields to the UN next Thursday. Therefore, this might bring good news for the Oil market.
Despite a stronger than expected US non-farm payroll report Gold moved higher on Friday. Investors continue to look for alternative investment as the coronavirus infection increased throughout China.
It is very likely to say that the market may struggle as a whole to figure out what is happening next. Overall, Gold is on an uptrend, and there is no information that can indicate that the Gold price may depreciate.
Despite the better than expected US- jobs data, stock markets are under pressure following a four-day rally. Therefore, the price action suggests the market may become overbought this week. Gold Buyers were pushing the price higher for the whole week due to the stock market decline that has been started with the Asian Market.
After the early reaction to the weakness of the stock market, lower and Treasury yields, gold may remain underpinned mostly by falling demand for risk.