Key events in the week ahead – ECB, RBA and FOMC

US stocks rallied into month-end on Friday with the VIX falling beneath 16 to finish off a volatile but ultimately positive month for global markets despite news of another bank collapse in the US. Risk appetite returned on mostly strong US earnings and the markets belief we are close to the end of Central Bank hiking cycles, the Dow Jones having its best month since January, rallying 2.5% in April.

US government seizure of First Republic Bank seems imminent with a Sunday deadline passing with no bids from rival banks to rescue the flailing bank which seems to be a prelude to authorities to place First Republic into receivership.

Monthly charts of major global stock Indices:

The Week Ahead – Central banks take the spotlight.

Coming up this week we have rate decisions out of Australia, the EU and USA which are sure to keep traders busy as the market digests what actions and clues to future actions these meetings present.

RBA – Tuesday

The RBA is to decide on rates next week with 26 out of 34 economists surveyed by Reuters forecasting the Cash Rate Target to remain unchanged at the current level of 3.60%. Recent inflation figures out of Australia have indicated that the economy had passed peak inflation, though with inflation still firmly above the RBA’s 2-3% target band further rate hikes can’t be ruled out, but this meeting looks very unlikely for any move on the official rate.

Futures markets are pricing in a 100% chance of a hold, so a hike in rates would be a massive surprise to the markets. With that scenario extremely unlikely the main driver of AUDUSD after this meeting will be the accompanying statement, whether it is seen as hawkish or dovish for future rate moves.

FOMC – Wednesday

Wednesday sees the US Federal Reserve meet to set rates where the consensus expectation is for the FOMC to lift rates by 25bp and indicate a pause going forward. Fed Fund futures are pricing in a 79% chance of a 25bp hike so we should see some movement in the USD over this announcement as rates markets re-price whatever the Fed does. Some pressure has been taken off the Fed with recent banking stresses are leading to a tightening of lending conditions and assisting them in the fight against inflation so it is likely that we will see a 25bp hike, followed by the statement and presser that hint that this is it for now which could see the USD come under pressure.

ECB – Thursday

The European Central Bank meets on Thursday to release their rate decision and monetary policy report. Rates markets are fully pricing in a 25bp hike, with a bit extra to modestly price in a chance of a 50bp hike. Up until recently the market favoured a 50bp hike after hawkish commentary out of several ECB members, though odds have since moved to a “compromise” 25 bp hike as the doves in the ECB argue that the banking stresses of  the last few weeks should have been a clear reminder that hiking interest rates – and particularly the most aggressive tightening cycle since the start of the monetary union – comes at a cost.

With a 25bp fully priced in not much movement in EURUSD would be expected, unless they did surprise with a 50bp move or an overly hawkish accompanying statement with the decision.

Along with the above Central Bank decisions we also have a raft of important US data worth keeping an eye on, including Non-Farm payrolls which rarely disappoints FX traders looking for some volatility.

The weeks calendar of major events below: