Forex Roundup: Central Bank Biases

Having a tough time keeping track of what central bankers have been saying these days? Don’t worry, I got your back yo! Here’s a quick roundup of the latest monetary policy biases in no particular order (or is it?).

U.S. Federal Reserve

Will the FOMC hike interest rates in November or December? Either way, the Fed is the only major central bank that has this tightening dilemma at this point and it’s just a matter of timing.

In the minutes of their September meeting, FOMC members noted that the decision to hold interest rates was a “close call” and that growth is still expected to pick up during this second half of the year. In fact, three hawkish policymakers voted to hike right then and there, but the rest of the committee thought it would be wise to take a cautious approach for the time being.

Reserve Bank of Australia

The latest RBA monetary policy statement was a tad more exciting than usual since they’ve got a new Governor in town. Apart from that, the minutes of the earlier RBA statement seemed less dovish than usual, leading most forex junkies that the Australian central bank isn’t likely to cut interest rates anytime soon.

This relatively neutral bias was more or less maintained under RBA Governor Philip Lowe who highlighted stronger export activity with Australia’s main trade partners and assessed that economic performance has been in line with their expectations. Still, RBA officials seemed concerned about the state of the labor market (and rightfully so) and said that they’d wait for the updated CPI figures to gauge if policy adjustments are necessary.

Swiss National Bank

SNB head Thomas Jordan and his fellow central bankers have been unusually mum about their policy biases, but that doesn’t mean that they’re paying any less attention to inflation and exchange rate levels. After all, the SNB has been notorious for intervening in the forex market to ward off deflation and to maintain its trade advantage so I wouldn’t rule out any potential surprises from these ninjas.

Bank of Japan

The BOJ hasn’t had a monetary policy meeting in quite a while but last time I checked, Governor Kuroda was leaning towards doling out more stimulus. Their September policy statement indicated that the central bank conducted a “comprehensive assessment” of its stimulus programs and concluded that they’d need to make adjustments with their QQE framework.

In particular, the Japanese central bank is ditching its plan of increasing the monetary base by ¥80 trillion per year. Instead, it warned that the “the pace of increase in the monetary base may fluctuate in the short run” which many interpreted to mean further easing. Keep in mind that the BOJ also listed its options for additional stimulus, namely lowering interest rates, increasing asset purchases, cutting the target level of long-term interest rates, and accelerating the expansion of the monetary base.

European Central Bank

This week’s ECB announcement was a bit of a letdown for euro bulls since Draghi dismissed rumors that QE tapering has been discussed. Although the central bank kept policy unchanged as expected, Draghi mentioned that they could extend their asset purchases beyond the March 2017 end-date, depending on inflation trends. He did hint that they might have a clearer bias once they get their hands on the next batch of economic projections in December.

Bank of Canada

Most market participants had been expecting this week’s BOC statement to be a dud, but Governor Poloz proved otherwise when he mentioned that the idea of additional stimulus had been actively discussed. Downgraded growth and inflation forecasts for the year underscored this view as Poloz explained that their downbeat outlook was mostly spurred by expectations of weaker export activity in the coming months.

Reserve Bank of New Zealand

The RBNZ kept interest rates unchanged in their latest policy statement but dropped a bombshell in saying that “further policy easing will be required.” Governor Wheeler zoned in on downbeat inflationary pressures and weak trade activity, citing that a decline in the exchange rate could be needed as well.

This view was reiterated by RBNZ Assistant Governor John McDermott who said that September quarterly inflation data is “expected to be low.” Except it wasn’t. In any case, Governor Wheeler still made some pretty strong arguments for cutting rates again, especially since the RBNZ no longer seems to be so worried about a housing bubble these days.

Bank of England

Last but certainly not least is the BOE which seems to be saving its monetary policy ammunition for when the Brexit hits the fan. In their September statement, BOE Governor Carney and his gang of policymakers decided to stand pat and wait for the impact of their August policy changes to kick in. So far, the U.K. economy has been able to keep calm and carry on in the aftermath of the Brexit vote, but threats from EU officials to make the negotiations tough on the U.K. could mean that dark and difficult times lie ahead.

There you have it, ladies and gents! I hope this simple roundup was able to guide you in your longer-term biases for the major currencies. Think we’ll see any surprises before the end of the year?



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