Heads up, forex buddies! We’ve got three major central bank monetary policy statements that could rock the markets this week. Given how the folks over at the European Central Bank (ECB) and the People’s Bank of China (PBOC) were able to spur huge moves across the forex charts last week, I’m inclined to think that the policymakers in the Fed, the Reserve Bank of New Zealand (RBNZ), and the Bank of Japan (BOJ) might have some surprises up their sleeves as well.
FOMC Statement (Oct. 28, 7:00 pm GMT)
There’s no denying that the Fed’s potential liftoff has been one of the biggest market themes this year, as forex market watchers have been eagerly anticipating when the U.S. central bank might finally hike interest rates. Economic data hasn’t been so impressive these days, leading analysts to push back their tightening expectations, but some FOMC members have been reiterating that a rate hike is still on the table before the end of this year.
Now the Fed is left with only a couple of monetary policy statements on schedule before we pop the champagne and sing “Auld Lang Syne,” which makes this October rate decision a pretty crucial one. Three possible scenarios come to mind:
- Actual interest rate hike of 0.25%
- No rate hike for now but still on track to tighten in December
- No rate hike, shift in stance to suggest that liftoff ain’t happening this year
Of course the first scenario could be very bullish for the dollar, as the currency could bank on strong fundamentals and a rise in risk aversion in the current weak global growth environment. The second scenario could still keep the Greenback supported if forex traders are convinced that a December rate hike is likely while the third scenario could lead to a sharp dollar selloff on risk appetite.
Keep in mind that FOMC members are also watching the dollar’s price action closely, as they’ve mentioned earlier this year that currency appreciation is dampening inflation. Watch out for a repeat of this spiel, which might also be bearish for the Greenback.
RBNZ Statement (Oct. 28, 9:00 pm GMT)
Next up, we’ve got RBNZ Governor Graeme Wheeler and his gang of policymakers gearing up to announce their monetary policy decision during the wee hours of the U.S. and Asian trading sessions. The RBNZ has cut interest rates three times in a row since June, but analysts are expecting them to stay on hold this time.
Economic data from New Zealand has shown a few improvements recently, most notably in the dairy industry. The bi-weekly auctions have yielded consecutive gains in dairy prices, which translates to stronger revenues for producers and upward pressure on inflation. Trade activity has also shown green shoots, along with consumer spending and tourism.
The slowdown in China and the emerging markets is still likely to be a major concern, though, so it’s likely we’ll still hear a few cautious remarks here and there. Nonetheless, any form of reassurance suggesting that the New Zealand economy might be in for brighter days ahead could keep the Kiwi supported against its forex counterparts.
BOJ Statement (Oct. 30, Asian session)
Last but most certainly not least is the BOJ statement scheduled on Friday’s Asian trading session. No actual monetary policy changes are expected for now, even though data from Japan seems to have taken a turn for the worse, leading some analysts to predict higher odds of further BOJ easing at some point.
In particular, business production data suggests that Japanese companies are already hurting from the downturn in exports, spurred by weaker global demand and falling commodity prices. Retail sales and household spending reports have seen a few gains here and there, but the trends don’t reflect a strong recovery just yet.
Japan is still set to print a few more economic updates before BOJ Governor Kuroda grabs the mic, as the latest set of household spending and CPI figures are lined up. However, forex analysts are bracing themselves for a sharp drop in spending and another batch of negative inflation figures, setting the stage for a potentially downbeat BOJ announcement.
As you’ve probably guessed, these top-tier events are likely to spark sudden moves across the forex charts so you might be better off sitting on the sidelines if you ain’t ready for volatile action. But if you’re gutsy enough to grab some pips during the actual announcements, just don’t forget to practice proper risk management. Good luck!