Traders have been patiently waiting for the next 24 hours to unfold, which should be chock-full of high-risk events with BOJ, FED & RBNZ rate decisions not to mention the much-anticipated speech from the new RBA Governor Phillip Lowe.
However, it does feel that expectations are low heading into this round of CB meetings and only time will tell if we are in for a surprise. Markets have been reasonably quiet over the past day, which is perhaps not too surprising with two key central bank policy yet to unfold.
The calm before the storm as traders are sitting on the edge of their seat awaiting a surprise.
USD/JPY (Pre BOJ)
USD/JPY has found itself temporarily frozen in the headlights, sitting tentatively in the middle of the broad 100-104 range. The primary concern on this BOJ meeting is the risk/reward favors being neither side of the market given both BOJ’s penchant for surprise and its lack of pattern or logic from some of the recent policy decisions; most traders are watching from the sidelines.
General chatter is that the BOJ is considering changes to the JGB purchasing program, in an attempt to steepen the yield curve, a further move on negative interest rate policy (NIRP) and a new forward guidance policy. However, the market is convinced that the BOJ will not move deeper into NIRP for this meeting and that the BOJ will do little more than indicate its intent to base its policy implementation on the yield curve.
An expected outcome from this BOJ meeting should prove to be neutral to bearish for USD/JPY, but the market is on guard for an increase in foreign asset buying which could see USD/JPY push higher through 104 resistance.
Australian Dollar
The RBA minutes provided little by way of direction overnight, consistent with its post-meeting statement. The AUD/USD rate cut expectations remain muted heading into years end and overall, the minutes RBA minutes came and went without much fanfare. Bear in mind this was Gov Stevens’ last policy meeting; what is more significant for local traders is that the new RBA Governor, Philip Lowe, who assumed the position two days ago, will appear before the House Standing Committee on Economics on Thursday.
This will be his first appearance as RBA governor, and while the market is not expecting any fireworks, it may shed some insight on the RBA future policy tack, especially if there will be a loosening of their longer-term inflation mandate which would imply tighter policy for longer.
Lending support to commodity currencies, WTI has bounced aggressively higher as a possible deal on oil market stabilization between the world’s leading oil producing countries may last for one year, according to Mohammed Barkindo, secretary-general of the Organization of the Petroleum Exporting Countries.
FOMC
An overwhelming majority of market participants expect no action from the Fed until December, but there are growing concerns that the Fed will have a difficult time convincing the market of those intentions. With that in mind, we may be left interpreting the Feds usual exercise in verbal gymnastics as they propel towards a hawkish forward guidance.