The last month of the second quarter of 2020 starts with key economic data and central banking decisions that will likely lead to volatile market conditions. Three major central banks are set to announce their monetary policy statements until Friday’s Non-Farm Payrolls (NFP) release in the United States.
Monetary Policy in Focus
Every first Friday of the month brings the NFP release – a key economic data out of the United States. Market participants interpret the job data in the US in light of the Fed’s mandate of price stability and job creation. The NFP week, for this reason, is a special week during the trading month.
However the week ahead is even more important as three central banks release their monetary policy decisions. As a result of the coronavirus pandemic, expectations are that all three central banks will have a proactive attitude, announcing further measures to stimulate recovery.
It all starts with the Reserve Bank of Australia (RBA) on Tuesday. The forecast is that the RBA will keep the cash rate to 0.25%, but the focus shifts to the quantitative easing in Australia and how the AUD reacts. The AUD pairs recovered aggressively since the start of the coronavirus crisis, and the RBA is credited with creating favorable conditions for that.
One day later, it is Bank of Canada (BOC)’s turn to announce the overnight rate level. After the price of oil turned negative in April, the CAD was one of the most volatile currencies of the Forex dashboard, with higher ranges than usual on most pairs. Any details regarding changes in the bond-buying program currently running in Canada will further add to CAD pairs’ volatility.
On Thursday, the ECB will likely steal the show. One of the most proactive central banks since the coronavirus outbreak, the ECB is expected to expand its PEPP program by another half a trillion Euro and to endorse the joint debt issuance announced by the European Commission last week.
Surprises are expected as well. Executive board member Isabel Schnabel and ECB’s Villeroy indicated that there is room for the ECB to innovate and that the central bank is ready to act. Thursday, we will also find out the staff projections for the Euro area, likely to point to further deteriorating conditions.
Friday’s NFP will close the week, with market participants focusing on signs of potential bottoming in job losses. Any sign of a reversing trend will give a boost to equity markets.