All Eyes On The Fed As Market Attemps To Predict Future Of Interest Rates
Last week, the market was disappointed after the Doha meeting held in Qatar failed to reach the agreement to freeze oil production. The meeting was not successful as the top producer Saudi Arabia required that Iran, the only OPEC member that was not represented in the meeting, also needed to sign up for the agreement. The tension between the two major oil exporters left investors worrying about the continuous oil glut with no solution insight.
Oil prices went up and down this week due to the effects of important events after the Doha meeting. Thousands of oil workers in Kuwaiti stopped working for three days to show their protest against the reforms in the public sector pay structure, reducing the production of this OPEC member nearly a half and supporting the oil prices to rise in short-term. However, after the strike ended, oil prices continued its downtrend as the bearish sentiment after the failure of the Doha meeting was revived. After that, sentiment was quickly reversed after the decrease in US crude oil inventories was released.
On Wednesday, Democratic and Republican former secretaries including Timothy Geithner, Henry Paulson, etc. signed in an open letter, expressing concerns that Britain’s economy could be seriously affected, and the role of London as the global financial center will be reconsidered if the Brexit occurs. The event immediately weighted on the sterling as investor’s risk sentiment returned.
At the post-meeting press conference of the European Central Bank on Thursday, ECB President Mario Draghi stated that the interest rate could be kept at the current record low for a long time, or even set to a lower level. This caused the Euro to fall strongly from the highest level in one week.
On Thursday, the number of people claiming unemployment insurance for the first time was at 247,000, 6.8% lower than the forecast. This was another another positive signal for the US economy, contributing to stabilize the US dollar.
Gold fell strongly on Friday, posting its second straight weekly loss. The surge of the dollar against the yen contributed to the fall. The Yen has fallen on speculation that the Bank of Japan was considering applying negative rates to its financial institution lending program.
In the upcoming week, the Federal Reserve policy review will be held on April 26-27, which is not expected to spring any major surprises. The market anticipates that Fed may use its policy statement to provide some hints regarding to the interest rate hike as early as June. The dollar may continue to be on defensive until the Fed conference results are reported.
The market is also watching out for a speech by Governor Stephen Poloz on Tuesday at the Investment Industry Association of Canada. As the head of the central bank, he has more influence on the Canadian currency than anyone else. For this reason, during his speech, the Loonie may be volatile, as investors try to interpret his statements for clues on the future path for Canadian interest clues.
In New Zealand, Trade Balance data for march is to be released. It is expected to come in at 405 million NZD surplus, up 19.4% compared with 339 million NZD, the month before. The expectation comes despite the slower growth rate in New Zealand’s services sector.
Due to the strengthening US labor market, the dollar is expected to gradually increase as long with the upward of the US real rates, which contributes to push gold down. For this reason, the bearish outlook on gold will be maintained among the market during the next week.