Finally, the wait is over for the September monetary policy meetings of the Federal Reserve and the Bank of Japan (BoJ). The US Dollar, which traded in a negative territory during early last-week, managed to reverse its previous week's losses and closed the week on a positive note as stronger than expected US Inflation readings bolstered speculations for the first Fed-rate-hike of the current year while the JPY remained strong as global uncertainty kept favoring its safe-haven demand. Further, the EUR had to bear the cost of weaker Economic Sentiment and Industrial Production figures and the GBP plunged heavily on disappointing data-points and dovish BoE comments. Moreover, Crude prices also flipped down with IEA's forecast of oil supply-glut in 2017 and news that Libya and Nigeria are up for restoring their oil supplies after Geo-political tensions curbed the same. The same downtick in Crude was also witnessed in other commodity prices due to stronger USD and dragged commodity currencies, namely AUD, NZD and CAD, towards south.
Having observed what caused last week's moves, market players should now focus on Wednesday's monetary policy meetings of the BoJ and US FOMC, which by far have been the most awaited. Additionally, the Reserve Bank of New-Zealand (RBNZ) is also scheduled to announce its monetary policy decision on the very same-day which makes the Wednesday the most important-day of the week. Other than central bank announcements, RBA minutes, US Housing Market details, EU Flash PMIs and Canadian consumer-centric details are some second-tier economics that could offer intermediate trading opportunities to trader's fraternity.
Fed Chair To Be In Limelight
Although August month's US employment report faded speculations that the Federal Reserve is capable enough to announce its first 2016 rate-hike in September, recent uptick in CPI, coupled with Fed Chair's hawkish comments during Jackson Hole speech in July, continue favoring chances that the FOMC might hint for much awaited rate-lift during the same meeting. Hence, even if there are fewer chances to witness a rate-change announcement from the US central bank, the Chair's press conference would be closely examined to forecast the December decision.
On Wednesday, the US Federal Reserveis scheduled for releasing its quarterly economic forecast and the Fed Chair is also noted to attend the press conference for the first time after Brexit. During the Pre-Brexit FOMC, policymakers cut the GDP forecasts from its March predictions and the Fed Chair played down the optimism for rate-hike by saying the upcoming Brexit decision and global uncertainty creates major risk for the US economy. Moreover, around 6 FOMC members saw only 1 rate-hike in 2016 unlike the previous was being one, which in-turn dragged the greenback on the day of announcement.
Considering the early-month shock of weakest NFP in four-months, contrasting to hawkish comments made by many FOMC members, last week's upbeat CPI might help the US Fed Chair to maintain her positive outlook for the US economy, uttered during Jackson Hole speech. Moreover, chances to witness her repeatedly applied "Wait And Watch" style become lesser expected as the Fed now has only one policy meeting, in December, before the 2016 ends wherein it gets the chance to convey economic projections and schedule Fed Chair's speech.
Hence, while not-so-weaker labor market details and upbeat inflation prints are indicating positive statement from the Fed Chair, which in-turn can fuel the greenback rally, a disappointment would have higher repercussions as a dovish or neutral communication can indicate no rate-hike in 2016 and could provide noticeable damages to the US Dollar.
In addition to the FOMC, Tuesday's Building Permits & Housing Starts, followed by Thursday's Unemployment Claims and Existing Home Sales, are some other US details that could help continue USD volatility. While Building Permits and Existing Home Sales figures are likely to please the greenback traders with 1.17M and 5.45M forecasts, compared to 1.14M and 5.39M respective prior, the Housing Starts might dip to 1.19M from 1.21M previous reading. Further, the Jobless Claims are also expected to remain around 260K prior with 261K print. As the major market attention is on the FOMC results, positive outcomes of the meeting can get additional support of the housing market details to fuel USD further to north, else disappointments from US central banker might not respect such second-tier details to help the US currency.
JPY Traders Shouldn't Miss BoJ
Alike US Fed, the Japanese central bank is also scheduled to announce its monetary policy outcome on Wednesday. The Bank of Japan (BoJ) will also communicate comprehensive review of its current policy framework that increases the importance of meeting.
Off-late the Japanese policymakers have been loud-mouthed and have supported the need for weaker Yen prices to help the economy; however, the Finance Minister recently said that he would work closely with central bank and sees that the same is working satisfactory enough to help the economy. At the economic front, Japanese data-points haven't been speaking in favor of the bank's mammoth monetary easing and some of the front-line decision makers have repeatedly signaled readiness to cut the borrowing costs further into negative region.
Looking at the market consensus, majority of the analysts are divided while forecasting this week's BoJ action. Some of them suggest another rate-cut of 2016 and the rest are in favor of additional QE; however, one thing is almost certain that the central bank would cut its timeline target to reach the 2.0% inflation as it failed to make 2013 promise of meeting the same in 2015.
To sum up, BoJ might not miss the opportunity to please market players and is more likely to refrain from additional rate-cuts while altering its QE measures, which in-turn could fuel the JPY strength. Also, the qualitative statement revealing effectiveness of the BoJ's monetary policy will also be important as an inefficient picture of the BoJ could damp the JPY's strength and might indicate government intervention on the road to help the export-oriented economy.
RBNZ And AU Communications Are Important For NZD And AUD
Reserve Bank of New-Zealand (RBNZ) is up for releasing its monetary policy meeting result on Wednesday, wherein the central bank isn't likely to alter its present state of measures as the bank did cut its benchmark interest-rate in August. However, RBNZ Governor seems not pleased with the following improvement in economics and has been found favoring lose monetary policy. As a result, a downbeat statement in RBNZ Rate Statement can signal that the New-Zealand central bank might announce another rate-cut soon and can pare some of the NZD gains. Also, a surprise rate-cut could not only hurt the NZD's near-term gain series but also trigger its fresh south-run.
Tuesday's monetary policy meeting minutes from Australia become crucial for the AUD traders. The RBA in its latest meeting refrained from altering its present monetary policy but favored the need to cut the benchmark rate, if needed. On the contrary, the AU details, including job figure and inflation marks, have been quite mixed and increases the importance of hawkish statement. The AUD, which is on its north-run, might witness a drag given the minutes favor loose monetary policy but MPC communication indicating an upbeat economy could limit the Aussie's extreme decline.
Last But Not The Least: EU Flash PMIs And Canadian Retail Sales – CPI
While FOMC and BoJ are likely to grab market attention, Flash readings of headline PMIs from EU and Germany, coupled with Canadian Retail Sales & CPI, up for Friday, are important data-points that can help forecast EUR and CAD moves.
Forecasts suggest German Flash Manufacturing And Services PMIs to print 53.2 & 52.2 marks versus 53.6 & 51.7 respective priors while the same readings for EU signal to flash 51.5 & 52.8 against 51.7 and 52.8 previous. Further, the Canadian CPI is expected to reverse its previous -0.2% contraction with +0.1% prior and the Core CPI may show +0.2% gain compared to 0.0% earlier print. Additionally, the Canadian Retail Sales is also indicating signs of improvement with consensus of +0.2% versus -0.1% prior while the Core Retail Sales becomes even a better signal with +0.5% expected against -0.8% marked in earlier month.
With the recent dip in EU economics, weaker PMIs continue favoring need of ECB's attempt to strengthen the economy and can drag the EUR further to south while upbeat Canadian data-points need to be backed by Crude price improvement in order to help the CAD.
Cheers and Safe Trading,
Anil Panchal