Major central bankers sure got busy over the last couple of days! In case you were too busy watching Olympics events, then you should know that the Fed, BOJ, BOE, RBA, and RBNZ just published their monetary policy decisions for July and August.
So what are these central banks the up to these days and how have their decisions affected their local currencies? Here’s a quick rundown of their decisions:
Fed: “It’s all good in the hood.”
The Federal Open Market Committee (FOMC) might not have made any changes to its policies in July, but it sure delivered the volatility that forex market players were looking for! In their statement, Janet Yellen and her gang have decided to keep their target rates at 0.25% – 0.50% with Esther George voting to raise the bar to 0.50% – 0.75%.
Overall, the Fed was optimistic on the economy, pointing out the strong labor market figures in June and the continued expansion of economic activity. It even explicitly said that “near-term risks to the economic outlook have diminished.” However, the central bank’s lingering concerns over low inflation and its refusal to provide forward guidance on its rate hike schedule led investors to believe that the Fed won’t hike its rates in September as many had expected.
The dollar spiked higher at the release of the mostly hawkish statement, but soon gave up most of its gains on a bout of risk-taking and doubts over a September rate hike.
BOJ: “Helicopter money? Nah.”
Much like Suicide Squad, market players booed the heck out of Bank of Japan (BOJ) as soon it printed its policy changes for July. See, traders have been speculating on a new set of monetary stimulus as soon as PM Shinzo Abe hinted at his own fiscal stimulus program in early July.
Citing slow global economic growth and uncertainty in the financial markets, BOJ Governor Kuroda and his team only ended up doubling their ETF and USD-denominated bank lending program and creating a collateral program to help Japanese companies with their USD transactions. A pretty underwhelming package for a crowd that expected lower interest rates, more asset purchases, and the possibility of using “helicopter money” to boost inflation.
Not surprisingly, the yen rocketed higher across the board, as a lack of more aggressive policy changes hinted that the BOJ isn’t too worried over the yen’s post-Brexit strength.
BOE: “Bring out the bazooka!”
Among the central bankers on this list, only Bank of England (BOE) Governor Mark Carney and his posse know that it doesn’t pay to be subtle in times of easier monetary policies.
In a widely-anticipated announcement, the BOE fired its first bullets since the EU referendum. It cut its interest rates down to a record low of 0.25%; restarted its QE program; planned to purchase corporate bonds, and launched its “Term Funding Scheme (TFS).” Taken together, these measures are expected to boost consumer and business sentiment as well as stimulate inflation by helping regular U.K. banks pass on the BOE’s lower interest rates to households and businesses.
Since average Joes (or Freds) were only expecting a rate cut and maybe a larger QE program, the BOE’s bazooka succeeded in dragging the pound lower. What’s more, the pound STAYED DOWN for the rest of the day.
RBA: “Oops, we did it again”
Joining the rate cut party was the Reserve Bank of Australia (RBA), which slashed its interest rates for the second time this year to a new record low of 1.50%. In its statement, Glenn Stevens and his band cited low inflation and the Australian economy’s adjustment from the mining boom as reasons for its easier policies.
Unfortunately for the RBA, its decision to cut its rates has been anticipated since Australia published weaker-than-expected inflation figures in Q2 2016. After all, the central bank made the same play after the Q1 2016 figures churned out disappointing numbers. Talk about spoilers!
The Aussie spiked lower at the RBA’s decision, but the predictability of the news caused intraday reversals for most Aussie pairs. The comdoll marked its intraday lows during the Asian session before ending the day higher across the board.
RBNZ: “Aaaand cut!”
Not to be left behind, the Reserve Bank of New Zealand (RBNZ) also cut its interest rates in August, this time down to a new record low of 2.00%. As mentioned in our trading guide, the central bank wanted a weaker Kiwi, as its recent strength has been causing damage not only to New Zealand’s trading numbers, but also to overall business sentiment.
Much like the RBA though, market players already called the RBNZ’s rate cut decision. For starters, the central bank published an unscheduled downward adjustment to its economic projections between its June and August statements. And, since Kiwi is higher and inflation is weaker than the last meeting, a 0.25% cut was a done deal for many analysts.
The RBNZ failed to take a leaf from the BOE’s book and pulled a BOJ instead. That is, it underwhelmed investors with only a 0.25% cut and lukewarm warnings of another one this year. Not surprisingly, NZD popped higher at the statement’s release and barely showed retracements throughout the day.
That’s it for our recap this week! Which among the central banks listed above would ease its policies further in September? Cast your votes on the poll below!
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