Forex Snapshot: Any Changes in Central Banks' Biases? – Part 2

Here’s the second part of my forex snapshot of the major central banks’ monetary policy biases these days. Just like I did in my previous article, I’ve picked a few pop songs to better illustrate where they stand.

BOJ: “Poker Face” by Lady Gaga

Bad data? So what?! BOJ Governor Kuroda seems completely unperturbed by the prolonged economic slowdown in Japan, as he has struggled to maintain his p-p-poker face while looking at the latest consumer spending and inflation reports. He even hinted that policymakers are already discussing the technical details of an exit strategy from their easing program.

In last week’s rate statement, BOJ policymakers seemed intent to keep bluffing when they said that additional stimulus isn’t necessary. Kuroda admitted that it may take a bit longer before the economy is able to reach its 2% inflation target but maintained that price levels are steadily improving.

RBA: “Geronimo” by Sheppard

Thanks to RBA Governor Glenn Stevens’ downbeat testimony a few days back, rate cut expectations led the Aussie to say “Geronimo!” against its forex counterparts. Stevens revealed that policymakers actually came close to lowering interest rates in their previous statement since further easing of monetary policy could be appropriate.

Because of that, traders are pricing in expectations of a 0.25% interest rate cut in this week’s RBA policy decision. RBA officials could also highlight the ongoing slowdown in China and how this might weigh on their iron ore exports and mining investment. And as always, Stevens might jawbone their currency once again, citing that the Aussie remains fundamentally overvalued.

BOC: “Shake It Off” by Taylor Swift

Although Canada suffered a huge setback during the oil industry slump, it seems that the BOC made the right move in announcing a surprise interest rate cut early this year to minimize the impact on its economy. Since then, Canada has been able to shake off the negative vibes from the crude oil price slide and has printed improvements in business activity and inflation.

While some forex analysts had been warning that oil prices haven’t bottomed out yet, BOC Governor Poloz is taking a “haters gonna hate, hate, hate, hate, hate” attitude in saying that the Canadian economy is already recovering and that no further rate cuts are needed. He even added that the ongoing rebound in the U.S. is also likely to have a positive impact on Canada’s export sector and overall economic performance.

RBNZ: “Fix You” by Coldplay

In their interest rate decision last week, RBNZ officials expressed their frustration over the slowdown in the New Zealand economy. Unlike their previous policy statement, the RBNZ decided to remove any mention of a period of stability for monetary policy or potential rate hikes.

Recent reports from New Zealand suggest that the economy may be stuck in reverse, as dairy export volumes and overall price levels have been sliding back down. RBNZ policymakers also projected that lower dairy incomes, fiscal consolidation, and the high exchange rate might weigh further on growth. With that, Governor Wheeler emphasized his resolve to fix these problems by hinting at a potential rate cut later on.