RBC Capital Markets

Week ahead: A plethora of central bank meetings this week, with the Federal Reserve, BOE, BOJ, Norges Bank, Bank Indonesia and Banco Central do Brasil among the most prominent. The latest economic projections from the FOMC will be in focus (see USD), the BOJ will reveal details of its policy review (see JPY), plus Australia employment data (see AUD), US retail sales (Tuesday), and Germany ZEW survey (Tuesday) among others. The high level US-China meeting is set to occur later in the week.

USD: The FOMC press statement (Wednesday) and Fed Chair Powell’s press conference should sound a lot like his most recent media appearance on March 4. We expect the Fed to do nothing at all until the incoming data (starting 2Q) trigger a significant adjustment to its growth and inflation expectations. The latest inflation print was “tame” beneath the surface, and the economic data remains mixed enough that Powell can stay cautiously optimistic.

JPY: The BOJ will unveil its long-awaited policy review (Friday) covering its negative interest rate policy, yield curve control, and ETF and REIT purchase programmes. There is widespread speculation about potential tweaks to the policy settings.

GBP: No policy changes are expected from the BOE meeting (Thursday). However, we think the tone of the meeting minutes will be worth paying attention to. Having ‘talked up the recovery’ since the turn of the year, it will be difficult for the MPC to row that back now, so we aren’t looking for a major step back from the more hawkish undertone evident in the previous minutes.

NOK: The Norges Bank meeting (Thursday) is widely expected to see policy on hold, but the tone of the statement will be closely scrutinised given the market pricing of more than one hike within the coming year.

AUD/NZD: We expect Tuesday’s RBA minutes to further reinforce the dovish tone of the board's statement and Lowe’s speech last week. Yield curve control, forward guidance, and the future path of QE all remain hot topics. Australia employment report (Thursday) should feature a continuation of the positive recovery momentum, with vacancy leads strong and community virus transmission remaining largely non-existent. There could be slightly smaller gains this time compared to the January report, but we still expect the number of employed to rise 30k, and the unemployment rate to dip to 6.3%. New Zealand Q4 GDP (Thursday) is also on tap.

CAD: RBC Economics is forecasting a 0.7% m/m rise in headline CPI (Wednesday), which would move the YoY rate up 0.2pp to 1.2%. Base effects will be pronounced in the coming months. The CPI-Trim and CPI-Median core measures, by contrast, could have a slight downward bias in the February data. Our economists see no reason to deviate from StatCan’s -3.3% ‘flash’ estimate for January retail sales (Friday). January featured a return to regional lockdowns, but the bigger story should be a strong rebound in February. We expect a ‘flash’ estimate for the month to show that the bulk of the December/January declines were unwound

Citi

USD: We expect the 17 March FOMC to be slightly hawkish, with the median dot rising to one hike but Chair Powell mostly downplaying prospects for withdrawing easing anytime soon in the press conference.

–We expect no changes to policy and no material changes to policy communications in the Statement, and the risks to our base case skew dovish. A dovish surprise would be if the median 2023 dot remained unchanged at zero hikes. A hawkish surprise would be opening the door more overtly to signalling the beginning of tapering this year or the 2023 median dot suggesting two hikes.

–Into the FOMC, higher US yields could push USD higher, too, as markets increasingly price a more hawkish Fed too. Our medium-term views remain for further upside in risk assets linked to global recovery, which over time should weigh on the USD.

JPY: In short, the BoJ policy review to be announced next Friday (March 19) is likely to include some changes to the central bank’s ETF purchases. While no firm market consensus has been formed, we think it almost certain that the BoJ tries to reduce its regular purchases.

–The review is likely to include an expansion of the target yield range under the yield curve control (YCC). Our understanding is that an excessively wide YCC range falls into a gray zone under the BoJ Act, and probably the Bank management also thinks it is not desirable from a legal view. That said, the BoJ seems to want to allow yields to fluctuate more widely and is likely to realize that goal by adjusting its market operations.

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