Forward Guidance: Global Politics Dominates in a Quiet Week for Data

Fundamental analysis of Forex market

This week gave us some positive news on the global trade front, with the US and China inching closer to a deal that could be finalized within a month. Next week we’ll get more clarity on another major issue clouding the global outlook: Brexit. It’s crunch time again with the UK scheduled to leave the EU on April 12th unless another extension can be agreed. After beginning talks with the Opposition, PM May this week proposed an extension to June 30th, while the EU prefers a longer “flextension”—perhaps up to a year. Any new deadline will have to be approved at an emergency European Council summit on Wednesday. If an extension can’t be agreed, risk assets are likely to take a hit—while sterling would suffer most, the Canadian dollar would also be under pressure.

On the data front, Canada’s trickle of monthly housing indicators continues next week. We’ll have to wait until the following week for the headliner, CREA’s March resale report, but this week did give us a view of how major markets fared in the month. Sales rose in Toronto but activity in Vancouver remained at multi-year lows. Both followed subdued sales in February, when wintry weather likely kept some would-be homebuyers indoors. We think weather was also a factor behind the slowdown in homebuilding in February, and expect starts rebounded to 220,000 annualized units in March. We’ll also get building permits data for February (always a month behind starts), with the recent upward trend in permit issuance supporting our expectation that last month’s decline in housing starts was transitory.

In the US, March CPI is the highlight with headline inflation expected to tick up to 1.8% as the drag from lower gasoline prices eases. We’ll also get minutes of what was a surprisingly dovish March FOMC meeting, when committee members lowered their expectations for rate hikes this year (a majority now seeing no need for a rate increase in 2019). We’ll be looking for context around the shift to a more neutral bias, what it might take to see further rate hikes, and whether policymakers are evaluating the need for a cut. The Fed’s dovish tone was one of the factors that led us to revise our forecast and we now think the Fed will be on hold through 2020.

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