Central Banks Dominate The Economics Calendar This Week

As we roll into a new month traders will be once again closely monitoring central bank action with the RBA, the ECB, the BoE, the BoJ and the Bank of Canada on the schedule this week. The stellar event with be Mr. Draghi and the ECB, but events unfolding in Russia might overshadow the central bank or force the hand of Mr. Draghi. This will be followed by a slew of Federal Reserve speakers leading up to the release of the US nonfarm payroll report which is expected to give an indication of what to expect from the US Fed.

The Reserve Bank of Australia is first up on Tuesday and is expected to hold rates and policy. The AUD is trading at 0.9340 this morning higher than the banks desired rates and there have been calls for an interest rate decrease, but none is expected. The kiwi is trading in the green this morning at 0.8374 as the commodity currencies gain on strong US data. The greenback has reached a 2014 high trading at 82.82 this morning.

At the Jackson Hole conference Bank of Japan Kudora indicated that the bank would continue its massive stimulus policy and with disappointing data on Friday including low inflation and a decline in Industrial Production, the bank might consider adding more stimulus as they are not near their 2% inflation target. The yen is moving into new lows against the dollar trading at 104.18 while against the euro the pair remains flat at 136.69. As the economic recovery appeared to stall in the second quarter, many individual investors decided to close their Japan equity market positions. Institutional investors were less quick to depart.

The Bank of England meeting is expected to go totally unnoticed as Mr. Carney does not seem likely to make any changes. The BoE avoids making a public statement if they make no changes so there will be little effect on Sterling which is trading at 1.6596 to start of the month.

The Bank of Canada will meet on Wednesday and the meeting will be overshadowed by Thursday’s ECB meeting. There is nothing expected from Mr. Poloz as the BoC has sat neutral on the sidelines throughout the entire economic crisis. The CAD is trading at 1.0871 gaining some momentum against the dollar after gold and oil prices gained a bit last week. The CAD economy is dependent on its US neighbors and with the US recovering nicely; the Canadian economy is expected to be pulled on its apron strings.

Now come to the marquee event of the week, the European Central Bank. The euro tumbled this morning to 1.3120 touching a 2014 low on threats from Mr. Putin to shut off gas to the eurozone. The eurozone also saw low inflation numbers on Friday which is of major concern to the ECB. This lack of inflation should provide the ECB with the flexibility to ease policy further. However, the consensus is for the ECB to make no change in its policy, which includes a main refinancing rate of 0.15%, a marginal lending facility rate of 0.4%, and a deposit facility rate of -0.1%.