FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

02/02 TUESDAY | 03:30 GMT | AUD RESERVE BANK OF AUSTRALIA RATE DECISION

The Reserve Bank of Australia is meeting for the first time in 2021. The outlook from the end of 2020 remains valid: even after shifting the focus of policy setting at the November RBA meeting, where officials out a greater focus on actual labor market outcomes (e.g. the unemployment rate) over expected price pressures, the December RBA meeting produced a general consensus that, yes, the situation was still “better than expected,” in Governor Phillip Lowe’s words.

The RBA has effectively admitted that they’re holding interest rates low because, well, everyone else is doing it. Otherwise, the data just don’t support the efforts, and rates markets don’t foresee any shifts in policy henceforth. According to Australia overnight index swaps, there is between a 16% to 25% chance of a rate cut through December 2021, which appears to be nothing more than a pricing quirk due to the RBA’s extraordinary efforts to institute yield curve control. The RBA will be keeping its overnight cash rate at 0.1% or lower for at least the next two and a half years.

IG CLIENT SENTIMENT INDEX: AUD/USD RATE FORECAST (FEBRUARY 1, 2021) (CHART 1)

FX Week Ahead - Top 5 Events: BOE & RBA Rate Decisions; Canada, New Zealand, US Jobs Reports

AUD/USD: Retail trader data shows 47.11% of traders are net-long with the ratio of traders short to long at 1.12 to 1. The number of traders net-long is 26.82% higher than yesterday and 2.41% higher from last week, while the number of traders net-short is 16.22% higher than yesterday and 2.46% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests AUD/USD prices may continue to rise.

Positioning is less net-short than yesterday but more net-short from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.

02/02 TUESDAY | 21:45 GMT | NZD EMPLOYMENT CHANGE & UNEMPLOYMENT RATE (4Q)

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