Fed and RBNZ Dovish, BOJ Next

The dominant dovish theme in global central banks reasserted itself once again after the Fed steered completely clear of anything like a hawkish bias. The New Zealand dollar higher in early Asia-Pacific trading despite an effort to remain dovish without a hike. The Bank of Japan is the next central bank on the agenda.  

The Fed continues to make a mockery of its dot plot. The forecast collectively calls for two rates hikes this year but the FOMC statement made it clear there are no plans to hike.

The market was caught wrong-footed on the release because headlines highlighted the removal of the line referring to global events posing risks. But that was essentially stating the obvious. The more important lines referred to a continued 'accommodative' stance and slower growth.

After jumping a half-cent the US dollar retraced. Choppiness and indecision followed but the dollar finished close to pre-FOMC levels.

The RBNZ decision was released in early Asia-Pacific trading. The market was leaning toward a decision not to cut rates but there was enough belief that it was possible that the kiwi popped 75 pips on the announcement. That was despite waves of dovish rhetoric and anti-NZD jawboning in the statement. It just goes to show how anything but a sprint to the bottom is cause for a currency rally.

That theme is likely to be underscored by today's Bank of Japan decision. The BOJ has been highly unpredictable over the past year so no one is comfortable. The belief is that they will unleash another round of easing or save it for a few months from now.

The last-minute thinking is that the dovish Fed will prompt the BOJ to act.  As Abe advisor Honda outlined earlier in the week, the argument for waiting is that the government could unveil a package along with the BOJ. It's a close call.

The final decision may also sway by CPI data to be released at 2330 GMT. The national reading is expected flat year-over-year. Excluding food and energy, the forecast is for a 0.8% rise.