The Week Ahead

During the week ahead the market is likely to look towards a number of key market themes and events which have the potential to indicate financial market moves.

The economic calendar is jammed packed with important events and releases this week. The Bank of Canada and Reserve Bank of Australia rate decisions are set to headline this week.

BOC Rate Decision

This week the Bank of Canada meet to decide on interest rates, based on recent data point the market appears to be fairly split as to whether the central bank hikes this week or not.

The Bank of Canada held the target for its overnight rate unchanged at 4.5% in its April 2023 meeting, as previously signalled, and stated that it will continue to monitor the latest economic data for future decisions on the policy rate.

The decision followed the tightening pause in March, as the Governing Council believes that current borrowing costs are restrictive enough to bring inflation down to the 2% level and opted to support slowing growth.

I think that the Bank of Canada might raise rates by 25 basis points on Wednesday. Markets could interpret that as a leading indicator for what the Federal Reserve might do the week after.

RBA Rate Decision

Last month the Reserve Bank of Australia surprised markets, unexpectedly raising its cash rate by 25 basis points to 3.85%, the big question is whether they will surprise again.

The market is probably expecting a hike as the tone of the RBA’s statement last month was hawkish. The statement stated that more tightening could be required in June and beyond if inflation continues to run above target, with services prices singled out for remaining stubbornly high.

Markets are pricing in a 45% probability for another rate increase, as inflation has been hotter than anticipated lately. If the RBA raises rates, the Australian dollar could benefit, although it’s questionable whether the currency can sustain a rally with the Chinese economy spluttering.