ECB Governing Council meeting, staff projections and TLTRO in focus! ~ Highlights and schedule for March 7 ~

Yesterday, following the release of Australia’s quarterly GDP which came in weak, the Australian dollar was heavily sold. The New Zealand dollar followed suit and was also sold.

Meanwhile, although the Canadian policy rate was left unchanged, the statement shifted to a dovish stance, causing the Canadian dollar to fall sharply.

The backdrop to the sell-off in commodity currencies also appears to be influenced by China. China’s economic slowdown and actions such as halting trade and imports with Australia and Canada seem to be affecting sentiment.

◎ Today’s Points of Attention

1) ECB Governing Council

1. Economic Outlook

The ECB Governing Council will publish its staff projections for the economy in the months of March, June, September, and December. What’s attracting attention this time is whether they will hold the outlook as is or revise it downward.

Market expectations lean toward a downward revision. There is also disagreement about how extensive the downward revision might be.

There is widespread speculation that a downward revision to the economic outlook could lead to additional easing or a change in the timing of rate hikes (forward guidance).

2. Timing of Rate Hikes

Under the previous forward guidance, the statement indicated that rates would be kept at the current level until the summer of 2019. It is anticipated that this phrase “summer 2019” could be postponed. Postponing to autumn or winter of 2019, or spring or summer of 2020 would be acceptable if a definite timetable is set, but leaving the horizon unclear would be the worst-case scenario. All eyes are on any changes to forward guidance.

3. Additional Easing

There has long been talk about introducing easing measures such as the targeted longer-term refinancing operations (TLTRO). Will the guidance address this, or has it been discussed? This is a focus.

In this meeting, it is unlikely that the ECB will suddenly implement easing policies, but there is a possibility of guidance in June or a June guidance that could lead to a September implementation. Looking at ECB precedents, changes to monetary policy or easing policy tend to be accompanied by guidance three months in advance. Therefore, all eyes are on whether there will be guidance on the introduction of TLTRO, or whether this will remain only under consideration or not even brought up for discussion.

“LTRO” and “TLTRO” – ECB’s Easing Measures in Play! – FX Terminology

◎ Today’s Economic Event Schedule

March 7 (Thursday)

National People’s Congress (NPC) Opens – through the 15th

09:30 AUD Trade Balance / Retail Sales

15:45 CHF Swiss Unemployment Rate

17:30 GBP Halifax House Price Index

18:30 GBP BoE external MPC member speech

19:00 EUR Employment Change / GDP

21:45 EURECB Governing Council Rate Decision

22:30 EURDraghi press conference

23:00 MXN Mexico CPI (Consumer Price Index)

March 8 (Friday)

NPC Opens – through the 15th

02:15 USDSpeech by Fed Chair Jerome Powell

06:45 NZD Manufacturing Production