The RBA’s meeting this week is expected to go off without much fanfare. Overnight index swaps are pricing in exactly a 1% chance of a rate move at the coming meeting: 1% chance of a cut; 0% chance of a hike. In recent weeks, economic data has started to fall below expectations, with the Citi Economic Surprise Index for Australia dropping from +62.2 on June 15 to +35.8 today. At the last RBA meeting, policy officials expressed concern that the Australian Dollar itself was too strong and could interfere with their ability to achieve their policy goals. With both headline CPI and GDP running below +2%, there is little reason to suspect anything will transpire at all – rates markets have this one right, don’t expect a surprise.
Pairs to Watch: AUD/JPY, AUD/NZD, AUD/USD
09/06 Wednesday | 14:00 GMT | CAD Bank of Canada Rate Decision
The Canadian Dollar has been on an absolute tear since June, and much of it has to do with pricing around potential BOC policy decisions. In early-June, there was less than a 10% chance of a rate hike for the rest of 2017. By mid-July, not only had one rate hike actually been priced-in – and the BOC did hike – but a second hike was being priced-in for the end of the year. While the market-implied odds of a BOC hike this week are just over 50%, the odds of another 25-bps hike by December are 83%. As such, even if the BOC does not hike this week, expectations are high that they will maintain their generally hawkish tone, and continue to prep markets for further policy tightening in the months ahead.
Pairs to Watch: CAD/JPY, EUR/CAD, USD/CAD, Crude Oil
09/06 Wednesday | 14:00 GMT | USD ISM Non-Manufacturing/Services Composite (AUG)
The August USD ISM Non-Manufacturing/Services headline reading is expected at 55.9 versus a prior reading of 53.9. The US Dollar should show heightened sensitivity to this report given the economy’s tendency to follow the performance of the service sector, which accounts for approximately two-thirds of jobs in the United States. This data will carry less weight this week, however, as it is typically used as a contemporaneous indicator for trends in US Nonfarm Payrolls data; the August report was released already last Friday.
Pairs to Watch: DXY Index, EUR/USD, USD/JPY, Gold
09/07 Thursday | 11:45 GMT | EUR European Central Bank Rate Decision
The European Central Bank policy meeting this coming Thursday is one of the four meetings each year that new staff economic projections (SEPs) are produced, which raises the stakes considerably for the week ahead. Yet unlike the past few policy meetings, where even the releases of the SEPs felt more like placeholders than anything, the coming rate decision this Thursday could have material consequences that span beyond the next few days.
The ongoing improvement in the Euro-Zone means that is likely to balance out his short-term concern over Euro strength with medium-term hopes that growth conditions will continue to improve. Ultimately, this may mean that the ECB decides to forego announcing the next phase of its QE taper at its meeting this week and punt on that decision until the next round of SEPs in December.
Read the full preview: What Matters Most for the ECB Meeting this Week is the Euro Itself
Pairs to Watch: EUR/GBP, EUR/JPY, EUR/USD
09/08 Friday | 12:30 GMT | CAD Change in Net-Employment and Unemployment Rate (AUG)
The Canadian labor market’s rebound is expected to have continued in August, with employment increasing by +10K and the unemployment rate holding at 6.3%. Assuming that the BOC doesn’t raise rates on Wednesday, this should be another print for the Canadian Dollar that increases the likelihood that the BOC raises rates again by the end of the year. With markets currently pricing in a 83% chance of a hike by December, there is still further room – not much – for traders to price in tighter policy from the BOC.
Pairs to Watch: CAD/JPY, EUR/CAD, USD/CAD, Crude Oil
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