No Action From RBA & the US Fed Until 2018

• It’s going to be a busy week with key data releases coming from Australia, the U.S., and Canada. Joining me today is James Hyerczyk from FXEmpire to provide his analysis.

Firstly James let’s start with Australia where the RBA meeting minutes will be released. Now if policymakers shift their tone into a more positive outlook, that’s going to provide support for the Aussie Dollar. However, a negative outlook would be bad news for the Australian Dollar.

So James, what outlook are you expecting?

James Hyerczyk:  I believe the RBA is going to remain cautious in this week’s minutes. I believe they still want to see a strong GDP and an improving labor market before they make their next interest rate hike and I don’t think it’s going to come until early 2018.

Quarterly GDP has to improve so we’re not going to get any reading on that until at least January. So I think the rest of this year they’re going to leave rate alone and then revisit the idea sometime in March.

Right now the numbers just don’t back a rate hike. And I don’t think they are going to succumb to the pressure of what the market is saying in terms of the value of the Australian Dollar or any pressure from the European Central Bank or the Fed as they continue to move towards tightening their monetary policy.

I think the RBA is going to stand firm in what they believe in and leave rates unchanged until at least March 2018.

• And the U.S. Fed will also be announcing their interest rate decision. The market currently expects no change. Do you agree with this?

James Hyerczyk:  As far as the Fed’s concerned I don’t expect them to raise interest rates. That’s been telegraphed for a long time. I think the odds of a rate hike in September are about 1.4% according to the Fed Funds indicator.

Also, I don’t think they are going to raise in December although investors are sitting on the fence on that one at about 50%.

I do think the next rate hike is probably going to come in June 2018. I think the Fed is going to try to calm or markets or tighten a little bit using the trimming process of its balance sheet.

That in effect is a tightening process although it’s not as dramatic as a rate hike, it should help to tighten the policy and pull-out some of that loose, cheap money that has been floating around.

But this time, the numbers just don’t support a rate hike in September or December, or even March next year.

Now if we do get tax reform passed here in the U.S. then I think that is going to help improve the economy and it may move, or speed up the process of raising rates. And I think that maybe that is what the Fed wants to see.

Yellen has been talking about a combination of monetary policy and fiscal policy working together to drive the economy and help with the Fed’s decisions. And so far, it’s been all about monetary policy.

So once we get fiscal policy straightened out here in the United States that’ll probably help improve the inflation rate and move inflation closer to the Fed’s 2.0 percent target.

• And Canada’s inflation is expected to come in at 1.5 percent, do you think the data will meet this and how do you expect the Loonie to react?

James Hyerczyk:  If inflation comes in as expected then I expect the market to remain neutral or we could see some profit-taking in the USD/CAD because it has dropped so much. And technically, it’s a little bit oversold.

So if we do see a stronger-than-expected inflation rate, then we may see signs of another rate hike coming. And that will put the Dollar/Canadian Dollar lower over the near-term.

But if it comes in steady as expected at 1.5 percent then we’re probably going to see a short-covering rally and that will give investors an opportunity or an excuse to book profits after a steep sell-off.

Thanks for joining us today James.