Last week, remarks from central bank officials were enough to spur strong moves in the forex charts. This week, we’ve got actual monetary policy statements coming up so let’s see what’s in store and how we can make profits from these!
1. FOMC Statement (Wednesday, 7:00 pm GMT)
Among the interest rate decisions lined up, tomorrow’s FOMC statement is probably the most anticipated one. After all, unlike most major central banks that are still teetering between staying put or taking a more dovish stance, Fed Chairperson Janet Yellen and her gang of policymakers are already debating when they should start tightening monetary policy with an interest rate hike.
However, recent reports from the U.S. have been churning out weaker than expected results, prompting forex market participants to wonder if the FOMC will still retain its hawkish bias. A few Fed officials have noted that the latest slowdown in hiring, spending, and business production is nothing but a temporary soft patch while more cautious policymakers have suggested that they delay tightening until next year.
Because of that, the U.S. dollar has been gradually retreating from its stellar rally that had been going on since last year. If Yellen confirms that the committee is rethinking its rate hike schedule, the Greenback could lose further ground against its forex counterparts. On the other hand, reassuring comments from Yellen could remind traders that the U.S. economy is still one of the better performing economies out there and allow the dollar to recover.
2. RBNZ Rate Decision (Wednesday, 10:00 pm GMT)
Even though RBNZ Assistant Governor John McDermott already dropped a few hints about their monetary policy bias last week, their official rate statement on Wednesday might still push Kiwi pairs around. Recall that RBNZ’s second-in-command mentioned that a rate hike is off the table for now and that they might even consider cutting interest rates if the inflation outlook stays subdued.
Recent economic reports from New Zealand have been mostly disappointing, as their quarterly CPI fell short of expectations while business and consumer sentiment have been turning sour. It doesn’t help that the Global Dairy Trade index has logged in price declines for three consecutive instances, indicating a slump in the dairy industry. The country’s major trade partners, Australia and China, have also been encountering road bumps these days and could probably reduce their shipments from New Zealand.
With that, the RBNZ could reiterate their downbeat assessment and outlook this week and spark another wave of losses for the Kiwi. As always, RBNZ Governor Graeme Wheeler might also take this opportunity to jawbone their currency again and emphasize that a weaker Kiwi would be more beneficial for price levels and trade activity.
3. BOJ Policy Announcement (Thursday)
The BOJ interest rate statement on Thursday could also be a pretty interesting one, as Governor Kuroda has recently hinted that policymakers are discussing the technical details for an exit strategy. Although the numbers don’t really add up, Kuroda seems to be convinced that the Japanese economy could reach its inflation target next year even if they start unwinding their stimulus program at some point.
Then again, forex market watchers may have just misinterpreted his latest comments so Kuroda might grab the mic to clarify his thoughts. If he admits that Japan could still use some help from their ongoing QE program, the yen could still wind up returning its recent gains. On the flip side, if Kuroda repeats his remarks on an exit strategy, the Japanese currency could be in for a longer-term climb.
There’s still a lot of room for surprises with these monetary policy statements though so I suggest you make the necessary adjustments with your forex trades, especially if you’ve got any open positions on the dollar, Kiwi, and yen pairs. As I always say, if volatility ain’t your cup of tea, there ain’t no shame in sitting on the sidelines during the actual event! Just make sure you’re able to catch up quickly to what went on and how it could affect forex price action.