As you’ve learned from the Fundamental Analysis section of our School of Pipsology, monetary policy tends to have a very big influence on currency price action. After all, it determines the amount of cash in circulation or the rate of return on holding a country’s assets, thereby influencing demand for its currency. While interest rate decisions tend to make the biggest impact on price movement, minutes of monetary policy meetings or speeches by central bankers also contain helpful hints that shape market expectations.
Here are the four main events you need to watch out for in the coming days:
RBA Monetary Policy Meeting Minutes
First up is the release of the Reserve Bank of Australia’s (RBA) monetary policy meeting minutes, which should shed more light on whether central bank officials are still confident about letting go of their easing bias.
With the exception of the Q4 2013 GDP report, data from Australia has been mostly weak lately as declines in construction work done and private capital expenditure led some market analysts to revise growth expectations lower. It doesn’t help that data from China has also been somewhat disappointing and that the world’s second largest economy announced its first corporate bond default the other week.
However, the previous monetary policy announcement revealed that the RBA is likely to keep interest rates on hold for the foreseeable future. It would be interesting to see though if some policymakers dissented or if there were suggestions to use an interest rate cut to spur Aussie weakness and boost competitiveness in the export industry. In that case, AUD/USD might erase some of its recent gains and retreat to the RBA’s desired trading levels.
BOE MPC Votes
Next, the Bank of England (BOE) is set to publish the number of policymaker’s votes on asset purchases and interest rates. No changes were made in their latest rate announcement earlier this month, but traders are eager to find out whether the votes were unanimous or not.
So far, data from the U.K. has been relatively stable and within expectations ahead of the meeting. This makes the BOE one of the more hawkish central banks out there, as Governor Carney has spoken of using forward guidance to manage market interest rate expectations. With more improvements seen in the U.K. economy in the past few weeks, some are expecting to see another round of growth and inflation upgrades which could provide support for the pound.
FOMC Statement
Perhaps the biggest event among the central bank happenings lined up for the week is the Federal Open Market Committee (FOMC) statement. No monetary policy changes are likely to be made and the Fed is still expected to carry on with its taper plan.
Keep your eyes and ears peeled for the press conference scheduled right after the interest rate announcement, as this is when Fed Chairperson Janet Yellen will give her assessment and outlook for the U.S. economy. Recall that she brushed off the recent slowdown in hiring and overall economic performance as weather-related so the dollar’s movement might hinge on her take on more recent data. After all, the latest jobs report showed a rebound in hiring and could be a sign that a recovery is underway.
SNB Rate Decision
Last but not least is the Swiss National Bank (SNB) rate decision, which doesn’t usually start a ruckus in the markets unless the Swiss central bank decides to intervene in forex trading. If you take a look at franc price action a few years back, you’d notice that there were some nasty spikes every now and then when the SNB tries to engineer a depreciation of its currency.
Take note that USD/CHF and EUR/CHF have been selling off really aggressively in the past few months, putting them closer to intervention levels and leading market participants to speculate that SNB Chair Jordan would attempt to talk down the franc and reiterate their pledge to defend the EUR/CHF floor.
That’s all, folks! I hope this quick preview of upcoming central bank events can guide you in figuring out which pairs to trade this week. Good luck and good trading!
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