Traders keep their eyes and ears peeled for central bankers’ speeches, not only because these tend to spark volatility, but also because their remarks usually dictate longer-term directional moves.
This week, three central bank leaders gave statements while a couple of policymakers also had a few words to say. It’s important to take note of their assessment and outlook for the economy, as these determine how they could adjust monetary policy later on. Here’s a rundown of what they had to say this week.
1. RBA: Governor Glenn Stevens
The Reserve Bank of Australia (RBA) had an interest rate announcement early in the week and policymakers agreed to keep interest rates unchanged at 2.50%. In his accompanying speech, RBA head Stevens mentioned how the rate cut last August is just starting to make a positive impact on the Australian economy.
Even though Stevens also remarked that a depreciation of the Australian dollar would provide an additional boost for growth, traders started buying the Aussie like crazy as they speculated that there won’t be any rate cuts for the rest of the year.
Of course it also helped that Australia just printed a strong retail sales figure just a few hours before the rate statement. Around that time, the U.S. was just a few moments away from an official government shutdown, which explains why AUD/USD was able to clock in more than a hundred pips in gains.
2. ECB: Chairman Mario Draghi
During its interest rate decision this week, the European Central Bank also refrained from cutting interest rates or doling out additional stimulus. This was a bit of surprise, especially since Draghi previously mentioned that policymakers had discussed the possibility of a rate cut or more long-term refinancing operations.
This time around, Draghi didn’t cause commotion among euro pairs, as he simply reiterated that the euro zone is seeing some improvements but that the recovery is still feeble.
At the end of the day, the euro was able to breathe a sigh of relief. The shared currency also happened to get a boost from good news in Italy, as Prime Minister Letta garnered enough support to keep the coalition government from crumbling.
3. FOMC officials: Bernanke, Rosengren, Bullard
Although the Fed didn’t exactly make a monetary policy statement this week, Fed head Bernanke still had a speech lined up. It was a crucial time for him to address the markets, following the US government shutdown on Tuesday. Most of his speech focused on the U.S. banking system, with Bernanke not taking any questions. He did warn though, that the “frustratingly slow” economic growth would hit the small banks.
Meanwhile, Rosengren and Bullard had more to say about the U.S. economy. Boston Fed President Eric Rosengren thinks that the economy is “treading water” and that the Fed should reduce the pace of its bond purchases very slowly, perhaps over several years.
James Bullard wants an adjustment to the Fed’s rate hike guidance, preferring an inflation floor as an alternative to jobless rate as a signal for rate hikes. These speeches added to the overall dollar weakness, as traders also reacted to a weak ADP report and another day of government shutdown.
4. RBNZ: Graeme Wheeler
Reserve Bank of New Zealand (RBNZ) Governor Wheeler isn’t one to be left out as he caused a ruckus on NZD pairs yesterday. He said that the RBNZ is willing to raise its interest rates more aggressively if the mortgage lending limits imposed this month don’t slow down increases in house prices.
Right now, the RBNZ is planning to raise its rates by 2% from 2014 to 2016 depending on the pace of house price inflation. Not surprisingly, NZD was boosted across the board at the news.
5. BOJ: Governor Haruhiko Kuroda
A few hours ago the Bank of Japan (BOJ) held off from any changes to its policies as it waits for the impact of its past stimulus injections to take effect. Not only that, but the BOJ is also on a wait-and-see mode regarding the impact of the sales-tax increase and the big U.S. debt ceiling deadline.
Kuroda also expressed optimism for the economy, saying that it’s “recovering moderately” while overseas economies are “heading toward a pick-up.” This is probably why we saw the yen extend its rally against its counterparts.
From what we can gather from all these central bank news, it appears that commodity-related central bankers like the RBA and RBNZ are generally more hawkish than the others. But of course we know that sentiment can be fickle and their views can change depending on economic data and their currency strength.