Central Banks Focus Forex Traders

One more bank is out of the way after the RBA held rates and policy but in his statement after, Glenn Steven’s said the economic outlook had improved. The Aussie gained 53 points to trade at 0.7200. Many analysts were hoping to see some action by the Reserve bank today, with the Australian economy hurting on declining manufacturing and stress from China.  Mr Stevens said “the outlook for inflation may afford scope for further easing of policy, should that be appropriate to lend support to demand”.

All eyes are now on this Friday’s quarterly statement on monetary policy, where the RBA is expected to downgrade its inflation outlook and could lower its growth forecast. The latter, in the past, has been a precursor to rate cuts.

“We see this as more dovish than previous commentary and can be viewed as an official easing bias,” said Charlie Jamieson from Jamieson Cootes Bonds in Melbourne.

“Clearly the RBA are now highly sensitive to any weaker data going forward that could derail economic conditions,” he said.

Tuesday’s decision was widely expected, despite the surprisingly soft third-quarter inflation reading last week and credit tightening by Australia’s four main lenders, who have been making investor mortgages more expensive. Mr Stevens acknowledged recent mortgage rate increases by the four main lenders, but said overall conditions were still quite “accommodative”.

There is one more major bank on the schedule this week and then we will move to December. The Bank of England will meet on Thursday and will release its minutes, decision and inflation report simultaneously.  The British pound jumped higher after the UK purchasing managers’ index for the manufacturing sector rose to 55.5 in October, its highest level in 16 months and ahead of the 51.3 expected and 51.8 reading in September. The GBP is trading at 1.5426 gaining 8 more points this morning.

The survey showed new export orders picked up, while employment remained in expansion for the 30th successive month. The report adds weight to speculation the Bank of England will tighten monetary policy, although most economists believe it is unlikely to do so at this week’s policy review.

“It’s looking increasingly likely that the BoE will have to consider a rate hike sooner rather than later. The New Zealand dollar fell against the British pound after a report showed UK manufacturing activity unexpectedly surged last month, stoking speculation about future interest rate hikes.  The kiwi is trading flat against the US dollar this morning at 0.6744 ahead of the GlobalDairy auction. The focus will be on the fortnightly GlobalDairyTrade auction with NZX futures pricing pointing to a decline.

Japan is on holiday this morning as the yen gained a bit of momentum to trade at 120.67 while the US dollar eased a few points but remained strong at 96.94 hugging the 97 price level ahead of Friday’s nonfarm payroll report which is expected to give some direction to what the markets will expect from the Federal Reserve in December.