Week Ahead: Bank of Canada to reduce purchases; Global Economic Recovery to pickup

The global economic recovery is gaining momentum as the world’s two largest economies continue to deliver robust economic readings.  China’s economy grew 18.3% in the first quarter, a record rate that sets the example of what we can expect as the rest of the world recovers from COVID-19.  The US saw weekly jobless fall to a pandemic low and retail sales explode after Americans put their $1,400 stimulus checks to work.  US stocks are steadily making fresh record highs and that could continue if Treasury yields take their time in recapturing the highs made at the end of March.

The taper tantrum might seem to be far away for the US, but it is already here for Canada.  The Bank of Canada is positioned to reduce weekly bond purchases at the April 21st policy decision.  The economic situation is much more optimistic than it was in the January meeting and Wall Street is now expecting the first BOC rate increase in the second half of 2022, with five total hikes through the end of 2023.

It is a busy week, with rate decisions, flash PMIs , and a wrath of CPI releases that could tilt some central banks into tightening a lot sooner.  Financial markets will continue to track developments over the J&J vaccine as that will have an impact on the short-term outlook with vaccine distributions across Europe and emerging markets.  The ECB will try not to commit to anything and maintain a wait-and-see approach regarding inflation rates and bond yields.  ECB President Lagarde will likely focus on the risks and uncertainty over vaccine rollouts and reopenings.  The June 10th meeting will be key for them.

BOC expected to reduce weekly asset purchases.

ECB to provide minor hints over how the pace of asset purchases will change in the summer.

Russian Central Bank to raise interest rates.



The dollar fell to a fresh four-week low as bond market volatility took the 10-year Treasury yield below the 1.60% level, a key level that had a lot of options tied to it.  The slide in Treasury yields surprised many traders and if sustained could keep the pressure on the greenback despite a steady wave of better-than expected data.

The economic boom for the US is here after jobless claims fell to a pandemic low, retail sales surged and all regional surveys all confirmed a robust outlook.  Wall Street also got its first dose of inflation as the economy strengthened and energy prices climbed higher.  The inflation debate will go on for months, but for now it seems the Fed’s call for it to be transitory will hold.

The upcoming week could show weekly jobless claims increase by 62,000 to 638K and existing home sales soften slightly to 6.20 million in March.  On Friday, the flash Markit PMI readings should see strong gains in both manufacturing and service sectors with new home sales rebounding from 775,000 to 875,000.


Canada will release its first budget in two years. Prime Minister Justin Trudeau’s government is expected to pledge tens of billions of dollars in spending to boost the economic recovery. Trudeau has a minority government and has hinted at a federal election later this year.

The Bank of Canada meets on Wednesday and is expected to start tightening policy by announcing that it will taper its purchase of government bonds. This would make the BoC the first of the G-7 central banks to tighten policy since the Covid-19 pandemic. The BoC is expected to make this move in response to the economy’s recovery, which has been more robust than anticipated.


The ECB holds its policy meeting on Thursday. The central bank is expected to maintain current policy and hold the Main Refinancing Rate at 0.00%. The bank will likely confirm that its asset purchases under its pandemic programme (PEPP) will run at a faster pace until June. ECB President Christine Lagarde has committed to continue the asset purchases until March 2022.

In Germany, the manufacturing sector remains a bright spot with strong growth, but services has been lagging due to the repeated lockdowns which has reduced business activity. German Manufacturing and Services PMIs will be released on Friday, with a forecast of 65.7 and 51.4, respectively. The 50-level separates contraction from expansion.


The upcoming week will be heavy on UK data, which could mean an eventful week for the British pound. On Tuesday, the UK releases key employment numbers (March Jobless Claims Change and Claimant Count Rate), with the ILO unemployment (rolling three months) for February projected to rise to 5.1%, up from 5.0%. This will be followed on Wednesday with the inflation report. March CPI (YoY) is expected to jump from 0.9%, up from the current 0.4%. Friday wraps up with an expected softer retail sales report for March and improving flash PMI data for the April. The Manufacturing and Services PMIs estimates both stand at 59.0, pointing to strong growth.

Emerging Markets


The Turkish Central Bank kept interest rates on hold last week, at 19%. The rate decision was the first for the new central bank governor, Sahap Kavcioglu. The governor bowed to market conditions, in particular inflation of 16.2% in March, and did not cut rates. However, the bank removed its tightening bias and scrapped the end-2021 inflation target, which was a dovish move. There is strong political pressure on the bank to lower rates, and this could mean a rate cut in the third quarter or earlier.

The Turkish lira has plunged about 11% since Naci Agbal was fired as the central bank governor in March. This means that inflation is likely to rise further in the coming months.


Russia’s central bank meets on Friday. The bank is expected to hike rates by 0.25%, which would bring the key rate to 4.75%. The bank raised rates by 0.25% in March, commencing its tightening cycle in response to rising inflation.

U.S. financial institutions will be barred from entry to Russia’s primary market for new, ruble-denominated sovereign debt, beginning June 14.

Ruble volatility could ease if investors continue to believe that Russian sanctions will have a limited impact.


China equity markets were dealt a blow after the PBOC tightened liquidity and after a mixed round of key economic data.  China’s record growth of 18.3% in the first quarter will be the peak and now start to trend lower.  The domestic outlook is improving following a better-than-expected retail sales reading, but the Huarong debt issues and tighter liquidity could remain a drag for Chinese stocks.

The Yuan has slowly appreciated against the dollar on the break of the 6.5500 level.  The bond market rally could continue and that should support some further yuan strength.

The big release of the week will be China’s loan prime rates, which are expected to stay anchored.  The 1-year and 5-year loan prime rates should stay at 3.85% and 4.65% respectively.


India’s outlook continues to deteriorate as Covid-19 cases continue a chaotic surge.  India’s two largest cities shut down after new virus cases jumped over 200,000.  The rupee is Asia’s worst performing currency and that could remain the case until the current COVID wave eases.

The focus for India will primarily be on the COVID situation, with some traders eyeing the upcoming bills auction. Indian sovereign bond yields jumped higher after the RBI’s first QE debt purchases.  If anemic demand hits these next rounds of auctions, yields could continue to rise.

No economic releases are expected next week.

Australia & New Zealand

The New Zealand dollar has been strengthening after the RBNZ policy mostly went as expected with no changes with interest rates or its large-scale asset purchases. The bank is prepared to lower the benchmark interest rate if required, but the risks to the economic outlook remain balanced.  Stop loss buying sent the kiwi higher, but that could continue if Treasury yields remain depressed.

A wrath of Australian economic data should show the economic recovery is improving.  On Wednesday, the March retail sales reading is expected to improve on a monthly basis from -0.8% to +1.0%.  A close eye will be kept on the flash PMI readings, which should see manufacturing and services remain in expansionary territory.  The minutes of the April policy meeting will provide more clarity over concerns over the frothy housing market and low wages.


Japan’s trade data is expected to swing back from a deficit to a surplus.  Exports should continue to improve given the strong recoveries from the world’s two largest economies.  The domestic situation is still depressed, and imports should lag the gains seen in the prior month.   It seems the latest virus spread will trigger another round of restrictions that should continue to be a headwind for equities.

On Friday, Japan’s national CPI readings should show deflationary pressures remain.

USD/JPY has declined for two consecutive weeks following the recent weakness with Treasury yields.  BOJ could start to decrease purchases and that should thwart some yen strength.  The 108.00 level should remain massive support for dollar-yen as long as Treasury yields start to stabilize.



Crude prices are rallying on an improved demand outlook now that the pace of vaccinations is improving dramatically across Western Europe.  Concerns over both the J&J and AstraZeneca COVID vaccines are waning as Pfizer, Moderna, Sputnik, and other vaccines ramp up supplies.  If the UK reopening of non-essential retail and outdoor hospitality is successful, crude demand forecasts could get massively upgraded on hopes that the rest of Europe will just be a couple months behind them.

Global stockpiles are continuing to decline and that should also support the bullish case for oil prices.  The dollar outlook has shifted quickly and if further weakness continues, the super commodity cycle could provide an additional level of underlying support for crude prices.


Gold bulls are rejoicing a strong trading week as weaker bond yields are keeping the dollar vulnerable to further losses.  Gold’s primary driver is real yields and now that the 10-year real yield is back at the March lows, investors had to reset their expectations over the path of bond yields.  Treasury yields will end the year significantly higher, but the short-term likely supports an extended consolidation that could see further downward pressure for Treasury yields.

Gold’s bullish streak could see further momentum now that China has given banks permission to import bullion.  Gold has massive support at the $1750 level and tentative resistance at the $1800 region, followed by the $1858 level.


Coinbase, the largest US crypto exchange successfully went public and triggered a new wave of retail and institutional interest for cryptocurrencies.  Bitcoin surged but that came to a tentative end on accelerated profit-taking after news hit that Turkey bans crypto payments.

The biggest fear for many crypto traders has always been that big governments might impose harsh restrictions on cryptocurrencies.  The situation Turkey is rather unique given the government is doing everything in their power to stabilize their currency.  Many on Wall Street believe that the lira is poised to fall over 10% in the short-term and that is forcing Turkey to impose capital controls and now also prevent lira’s going into Bitcoin.

Bitcoin volatility will remain elevated and the recent Dogecoin bubble could trigger a massive risk-off environment for all cryptocurrencies.

Key Economic Events

Monday, April 19

– Canadian Prime Minister Trudeau’s government releases its first budget in two years.

– U.K. Fintech Week starts with a keynote speech by Chancellor of the Exchequer Sunak.

– Riksbank Deputy Governor Breman gives speaks on the economic risks of climate change.

Economic Data/Events:

  • Japan industrial production, trade, capacity utilization
  • UK Rightmove house prices

Tuesday, April 20

Economic Data/Events:

  • Japan tertiary industry index, machine tool orders
  • UK Unemployment
  • Russia unemployment, retail sales, real wages
  • Australia RBA minutes of April policy meeting
  • Germany PPI
  • Czech PPI
  • Apple’s Spring Loaded Event (new iPad Pro line, AirTags, and a new iMac are expected
  • Netflix reports after the close

Wednesday, April 21

– Russian President Putin delivers his annual address to the nation.

– BOE Governor Bailey speaks on “Diversity and Market Intelligence”

– BOE Deputy Governor Ramsden gives Wednesday’s keynote speech at U.K. Fintech Week.

Economic Data/Events:

  • Bank of Canada (BOC) Interest Rate Decision: Expected to taper its weekly bond purchases
  • BOC Gov Macklem press conference
  • Australia retail sales, Westpac leading index
  • Japan supermarket sales
  • South Korea PPI
  • Canada CPI
  • South Africa CPI
  • New Zealand CPI
  • Russia CPI
  • UK CPI, retail price index
  • Poland average wages, employment, PPI
  • EIA crude oil inventory report

Thursday, April 22

– Earth Day 2021. The theme this year is “Restore Our Earth.”

– President Biden Invites 40 World Leaders to Leaders Summit on Climate

Economic Data/Events:

  • European Central Bank rate decision: Expected to keep policy unchanged, affirming that asset purchases will run at a faster clip until June.
  • ECB rate decisions presser with President Christine Lagarde
  • US initial jobless claims, leading index, existing home sales Mar: 6.21M estimate v 6.22 prior
  • Eurozone Apr Advance consumer confidence: -11.5 estimate v -10.8 prior
  • Thailand trade
  • Australia NAB business confidence
  • Mexico Unemployment
  • France manufacturing confidence
  • Poland retail sales
  • Russia gold and forex reserves
  • Netherlands unemployment, consumer spending
  • Switzerland imports/exports
  • Ireland PPI

Friday, April 23

Economic Data/Events:

  • US Apr Prelim Markit manufacturing PMI: 60.0 estimate v 59.1 prior, new home sales
  • Eurozone Apr Prelim Manufacturing PMI: 62.2 estimate v 62.5 prior
  • Germany Apr Prelim Manufacturing PMI: 65.7 estimate v 66.6 prior
  • UK Manufacturing PMI
  • Australia Manufacturing PMI
  • Russian Central Bank (CBR) Interest rate decision: expected to raise Key Rate 25bps to 4.75%
  • Russian rate decision press conference with Governor Nabiullina
  • Japan CPI
  • Singapore CPI
  • Japan manufacturing PMI, department store sales
  • Taiwan industrial production
  • Thailand foreign reserves
  • Mexico retail sales
  • UK retail sales, GfK consumer confidence, public sector net borrowing
  • Baker Hughes rig count

Sovereign Rating Updates

– Finland (Fitch)

– Netherlands (Fitch)

– EFSF (S&P)

– Greece (S&P)

– Italy (S&P)

– U.K. (S&P)

– Finland (DBRS)


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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya