Brace yourselves for a wild ride, fellas! We’ve got FOUR central bank events that could spur additional volatility in the forex arena this week. Here’s what’s in store and how currencies might react.
1. RBA meeting minutes (Sept. 20, 1:30 am GMT)
The release of the RBA minutes for their policy meeting earlier this month could serve as the warm up for all the central bank action later on in the week. After all, the Australian central bank just sat on its hands and kept interest rates on hold at 1.50% then.
Their accompanying statement indicated that policymakers were seeing green shoots in commodity prices, exports, and employment but were wary of risks from a slowdown in emerging market economies, particularly its trade BFF China. RBA officials also noted that inflation remains weak but that housing market risks have subsided, possibly giving the central bank room to ease again later on if necessary.
With that, the transcript of their huddle should shed more light on whether or not other policymakers believe that further rate cuts could be needed. Still, a relatively neutral tone could keep the Australian dollar supported against its peers, especially since the RBA could be setting up for a smooth transition for incoming Governor Philip Lowe this month.
2. BOJ policy decision (Sept. 21, Asian session)
The market action is expected to heat up during the Japanese central bank’s policy decision since BOJ officials have been giving mixed signals over the past few weeks. While Governor Kuroda has seemed determined to pump up stimulus, news reports have quoted other policymakers suggesting that most of the board members are either opposed to the idea or are still undecided.
Just last week, Japan’s Finance Minister Taro Aso mentioned that they are working closely with the BOJ to figure out how to bring the Japanese economy closer to its 2% inflation target. This had market watchers jittery because it’s the Ministry of Finance that gives the go signal for any central bank intervention efforts to weaken the yen, so yen bears might be ready to paint the town red if such an announcement is made.
Prior to this, a report on the Nikkei Asian Review revealed that central bank officials might be ready to bring interest rates deeper into negative territory just to stimulate economic activity. Either way, just make sure you’ve checked out my latest Economic Snapshot on Japan to see how the numbers are looking these days!
3. FOMC statement (Sept. 21, 6:00 pm GMT)
Onto the main event… the FOMC statement! Most forex junkies are likely to keep very close tabs on this announcement since the U.S. has actually come a long way in its economic recovery. The question is: Is it enough to convince the Fed to hike interest rates?
Based on some of their recent testimonies, majority of the FOMC voting members are starting to lean towards a hawkish stance, which suggests that a rate hike could be on the table. Even Fed head Yellen herself stated that she thinks the case for tightening has strengthened in the recent months, citing the solid labor market performance and their upbeat outlook for inflation.
However, Uncle Sam did encounter a few road bumps in the past couple of months that might be enough to convince most Fed officials to play it safe. For one, business activity has slumped in August, reflected mostly in weaker PMI readings, while the latest jobs release has printed subpar results.
Should the Fed decide to stay put for now, their revised economic projections might provide clues on whether a rate hike is still possible in December or not. Keep in mind that the Greenback could still rally on the idea of tightening before the end of this year so y’all better review the latest U.S. economic reports to get a headstart on what the FOMC might do.
4. RBNZ interest rate decision (Sept. 21, 9:00 pm GMT)
The RBNZ is set to close the central bank show this week with its interest rate decision just a few hours after the FOMC. No actual monetary policy changes are eyed, though, since the New Zealand central bank also cut interest rates by 0.25% last month and in March.
Besides, the latest batch of reports haven’t been so disappointing. The Global Dairy Trade Auction has been churning out consecutive gains in dairy prices, suggesting a rebound in the sector and potential upgrades for milk payout forecasts, likely supporting overall business activity and consumer spending as well. Quarterly retail sales have been more than twice as strong as expected while hiring for the same period has been robust as well.
While last week’s Q2 GDP release fell short of expectations with only 0.9% growth versus the 1.1% consensus, the upside is that the previous quarter’s reading was upgraded from 0.7% to 0.9%. Still, trade activity has remained subdued, possibly dampening the RBNZ’s outlook and the Kiwi’s performance.
There you have it, ladies and gents! Quite a busy week, huh? As always, if you’re not feeling comfortable trading around these event risks, you can always sit on the sidelines and just watch price action unfold. And if you’re gutsy enough to trade these events, be mindful of what markets have already priced in because profit-taking opportunities could come into play. Good luck!
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