FX Week Ahead: RBNZ and RBA rate decisions

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The week ahead will see the continuation of the central bank decisions with the focus turning to the RBA and the RBNZ. Both the central banks are expected to remain on the sidelines, however, as no rate hikes are expected this week. Economic data from the US is expected to remain on the back foot following a rather busy trading week.

China will also be releasing the monthly inflation figures this week which is expected to show a modest increase from the previous month. Producer prices index is, however, expected to slow down following last month’s stronger increase.

Economic data from the Eurozone this week will be focused mostly on second-tier data which includes industrial and construction output and services PMI data. The Eurozone Sentix investor confidence data will also be coming out which is expected to increase strongly.

Here’s a quick recap into this week’s economic calendar for the currency markets.

RBNZ expected to remain on the sidelines

The Reserve Bank of New Zealand will be holding its monetary policy meeting on late Wednesday. The data comes following Monday’s inflation expectations data for the quarter which is expected to play a role. However, the central bank is not expected to hike rates at this week’s meeting although last quarter’s employment report came out stronger than expected.

Inflation data was also encouraging as the latest reports released two weeks ago showed that headline consumer prices in New Zealand rose 0.5% on the quarter ending September. This pushed the annual inflation rate to 1.9%.

Investors will be looking for any statements from the RBNZ amid the change of government in New Zealand. The Kiwi dollar fell sharply after the newly formed Labor party government took charge with the help of the NZ First Party. The government was quick to announce that it was planning to overhaul the RBNZ’s mandate which could most likely include the full employment mandate besides the inflation target.

RBA expected to stay neutral. Risks for a dovish statement increases

The Reserve Bank of Australia will be holding its monetary policy meeting on Tuesday. Economists polled expect to see no changes to the cash rate which is expected to remain steady at 1.50%. The outlook for the RBA could, however, turn dovish given the recent economic data that includes inflation and retail sales figures, both of which were not very encouraging.

A few weeks ago, the headline consumer prices in Australia showed a 0.6% increase on the quarter ending September. This was a slower pace of increase after consumer prices rose 0.8% in the second quarter. The trimmed mean CPI was also weaker, rising 0.4% on the quarter following a 0.5% increase previously.

Last week, the retail sales figures showed a grim picture as sales remain flat during the month. This followed a 0.4% increase during the previous month. The retail sales data fell short of the 0.4% increase that was expected. In the quarter ending September, retail sales in Australia were seen rising just 0.1%.

Many economists are now expecting that the weaker than expected data potentially clouds the timing of the rate hike from the RBA. This has also further pushed back rate hike expectations towards the end of 2018. As a result, the monetary policy statement will be closely monitored as investors look to re-price the timing of the next hike.

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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