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Key events to watch in the week ahead: 27-31 Mar 2023

With the Fed meeting behind us, what are some of the key events to watch next week?

Source: Bloomberg

This week’s overview

This week brought a mixed tone out of the Federal Reserve (Fed) meeting, which signalled that its rate hike cycle is nearing an end, but with no room for rate cuts until 2024. Nevertheless, that provides the go-ahead for growth sectors to further take leadership from value – a trend that has been in place since the start of this year. This comes as dwindling authorities’ support for a 'blanket insurance' of bank deposits continue to put the financial sector on the backfoot.

With the Fed meeting behind us, here are some of the key events to watch next:

29 March 2023 (Wednesday, 8.30am SGT): Australia’s February monthly inflation rate

The recent Reserve Bank of Australia (RBA) minutes saw a step-down from previous hawkishness, as policymakers reconsidered the case for a rate pause at the following meeting. This has been supported by promising signs of easing inflation in January (7.4% versus previous 8.4%), with the absence of any upside surprise in pricing pressures in the lookout next week to further justify a rate pause from the central bank.

The dovish takeaway from the RBA has not been positive news for the Australian dollar, with an ongoing struggle for the AUD/USD to move back above its 200-day MA. A lower-than-expected inflation read next week will likely weigh on the pair further. Greater conviction for the bulls may have to come from a move back above the 0.680 level to overturn the lower-high narrative. Otherwise, trading below its 200-day MA may still keep the downward bias in place.

Chart 1_AUDUSD Source: IG Charts

31 March 2023 (Friday, 9.30am SGT): China’s March NBS manufacturing and non-manufacturing PMI

Reopening efforts in China have translated to a sturdy rebound in Purchasing Managers' Index (PMI) figures in January, with the manufacturing sector delivering its highest reading since 2012. The strength is mirrored in services activities as well, with its highest reading (56.3) in two years. All eyes will remain on how far the post-Covid recovery boom can continue, with the services sector having to step up to do the heavy-lifting, considering that external demand conditions may face further headwinds.

The China A50 index has been trading within a descending channel pattern since February this year, with recent price action nearing the upper channel trendline resistance. A stronger-than-expected recovery in China’s PMI next week may be supportive of upside, but a break above the channel pattern may be needed to provide greater conviction for the bulls.

Chart2_ChinaA50 Source: IG Charts

31 March 2023 (Friday, 5pm SGT): Eurozone’s March flash inflation rate

After the Fed signalled for a near-end to its rate hike cycle, expectations are mounting that the European Central Bank (ECB) could follow the Fed’s path of heading towards a potential rate pause despite core inflation showing no signs of peaking as of February. For now, rate expectations are still relatively split between the need to have one or two more 25 basis-point hikes over the next few meetings, and the inflation data will be on watch to anchor down some expectations.

More persistent inflation presented next week could likely lift the EUR/USD higher, keeping the pressure for the central bank to continue its rate hike process. The pair is currently near its February high, after a breakout from its ranging pattern. Any move above the 1.100 level of resistance could form a new higher high and reiterate the overall upward trend.

Chart3_EURUSD Source: IG Charts

31 March 2023 (Friday, 8.30pm SGT): US March core PCE price index

An impending rate pause seems to be the takeaway from the recent Fed meeting, with interest rate futures pricing for a 60% probability that we may have already seen its peak. However, that surely comes on the basis that inflation will continue to moderate moving forward. The resurgence in core PCE pricing pressures in February (4.7% from previous 4.6%) has been a challenge to dovish hopes, so another pull-ahead in inflation next week will likely keep the pressure on for the Fed to deliver another 25 basis-point at the next meeting.

The US dollar has breached its 103.12 level this week, with the formation of a new lower low keeping the downward bias in place. A higher-than-expected inflation reading next week may trigger a knee-jerk upside reaction in the US dollar, but with the banking crisis potentially driving some deflationary effect over the coming months, it could still be unlikely that the US dollar can see a renewed bull trend ahead.

Chart4_USDBasket Source: IG Charts

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