RBA, BoC & ECB Deliver Interest Rate Decisions

• On Tuesday the RBA will announce their interest rate decision. Although the RBA has indicated it is in no hurry to move the benchmark cash rate from 1.5%, the accompanying announcement will be closely watched – what type of comments do you think we can expect from the central bank?

Macroeconomic data out of Australia has been relatively upbeat in recent weeks, with the only particularly disappointing figures being this morning’s Company Gross Operating Profits for the 2^nd quarter, down 4.5%, reversing most of the 5.8% rise in the previous quarter.

With macroeconomic data out of China last week being on the positive side, China’s manufacturing sector seeing a pickup in activity, the RBA will likely continue to talk positively about the global economic outlook, whilst raising some concerns over the rising tension in the Korean Peninsula following the latest nuclear test that could unravel economic growth in the region should there be any military response.

Domestically, recent labour market data was a little weak, which will likely lead to some further cautious language in the statement, with wage growth continuing to be lackluster another issue faced by the RBA, with a negative outlook on the labour market likely to be taken as a further delay to any shift in monetary policy. But, the RBA will have to acknowledge solid growth through the 2^nd quarter, which will be reflected in the 2^nd quarter GDP numbers due out on Wednesday.

The RBA Holds Rates, Bringing the EUR and GBP into Focus

We would expect the RBA to continue to be wary of AUD appreciation, however, and the likely complications to the economic recovery, with the AUD sitting currently sitting just shy of $0.80 levels, pegged back by the current risk off sentiment in the market.

• Shortly after Canada’s Balance of Trade is released, the Bank of Canada will also reveal whether they intend to change their interest rate. Although the market expects no change, how would you advise Loonie traders to position themselves?

There’s certainly plenty of debate over what to expect in this week’s Bank of Canada monetary policy decision, with the general consensus siding with rates to be unchanged for now. Things have certainly been bright for the Canadian economy, with the economy outpacing that of the U.S and there’s just cause for the Bank to make another move to reverse the rate cuts back in 2015.

Strong trade data suggests that the Bank may be able to accept some degree of loonie upside, with concerns over rising household debt likely to certainly make a case for a rate hike before the end of the year, with the central bank looking to peg back growth contributions from household debt and the housing sector.

While the markets may initially be disappointed should the Bank of Canada hold back on a move, the forward guidance will be key and ultimately, monetary policy divergence sits firmly in the hands of the Loonie, suggesting that further upward momentum is likely in the near-term.

• Euro Area GDP 3rd estimate will be released on Thursday and will be followed by the interest rate announcement from the ECB. These are two events likely to have a big impact on the market – do you think Thursday will be a bullish or bearish day for the Euro?

From a GDP perspective, macroeconomic data released out of the Eurozone since the 2^nd GDP estimate that can influence the 3^rd estimate GDP numbers on Thursday included the Eurozone’s trade balance, the trade surplus widening at the end of the 2^nd quarter, suggesting that the GDP numbers will at least be in line with 2^nd estimates. With economic indicators continuing to show growth through the 3^rd quarter, the 3^rd estimate figures are likely to be EUR positive, posing the question to the ECB on whether they can continue to hold back on a shift in monetary policy.

The ECB monetary policy decision later in the day on Thursday is unlikely to catch the markets off guard, with few if any expecting the ECB to move on rates or begin tapering its asset purchase program, though the press conference that follows will almost certainly impact the EUR.

Recent guidance from members of the ECB has been that the ECB will likely refrain from unveiling any plans on a tapering to the asset purchase program, preferring to wait until the December gathering.

With time running out, it may be a tall order for Draghi to get through the press conference without having to disclose some views on the tapering, which will make for an interesting press conference, particularly with the growing concerns over EUR strength, the FED’s dovish stance continuing to peg back central banks who had been looking to begin making a policy shift.

I would expect the events to be bullish for the EUR, talk of positive momentum in the Eurozone economy and the knowledge of a likely imminent tapering to the asset purchasing program certainly positives for the EUR.