What to expect from the FOMC, RBNZ, and BOJ this week

Move over, Game of Thrones! The upcoming central bank statements this week could also be filled with shockers so don’t forget to read up on what forex fans are expecting. In case you haven’t checked the economic calendar yet, we’ve got announcements from the Federal Reserve, the Reserve Bank of New Zealand, and the Bank of Japan!

 

FOMC Statement (April 27, 6:00 pm GMT)

First up is Fed Chairperson Janet Yellen and her posse of policymakers set to get the forex party started on Wednesday’s New York trading session. Even though majority of market watchers aren’t really expecting any tightening announcements for now, dollar traders will be paying close attention to potential changes in rhetoric and looking for spoilers about a possible June hike.

Why they might sound hawkish: Remember when FOMC members started counteracting their not-so-upbeat March meeting minutes with surprisingly optimistic speeches in the same week? And how head honcho Yellen appeared to suddenly switch to a more positive tone? Central to their hawkish remarks are the improvements in the global financial situation, the progress in terms of moving closer to inflation targets, and the continued developments in the U.S. jobs market.

As Pip Diddy mentioned in today’s U.S. session recap, economic guru Mohammed El-Erian predicted that the Fed might start prepping the markets for a June rate hike, citing Yellen’s relatively upbeat assessment of the economy earlier this month.

Why they might sound dovish: Well, recent reports from the U.S. haven’t exactly painted a rosy economic picture. Growth has been slowing for the past three quarters, dragged down by weak trade activity and declining business investment and corporate profits. Annual inflation has been trending lower due mostly to the oil price slump yet consumer sentiment and spending have also been sliding.

 

RBNZ Decision (April 27, 9:00 pm GMT)

Next up, we’ve got the RBNZ set to announce their interest rate decision during the wee hours of the Thursday Asian session. There has been some talk of a possible interest rate cut from 2.25% to 2.00% for this particular meeting, but you gotta remember that they’ve just lowered rates in their March statement.

Why they might cut or stay dovish: RBNZ officials don’t seem to be too happy about the Kiwi’s appreciation, blaming this for downward pressures on domestic inflation and pointing out that “a decline would be appropriate.” At that time, NZD/USD had also been trading around the .6800 levels.

The employment situation is pretty downbeat, as the headline figures masked the underlying weakness in labor force participation. The participation rate has been dropping for three consecutive quarters and has reached its lowest level since Q3 2013 at 68.4%.

Why they might be less dovish: The freshest batch of reports from New Zealand suggests that the economy could eventually turn a corner, as the Global Dairy Trade auctions this month yielded decent gains in dairy prices (2.1% and 3.8%). In addition, the CPI reading for Q1 turned out better than expected with a 0.2% increase in price levels versus the projected 0.1% uptick and the previous 0.5% drop.

Businesses have stayed optimistic while trade activity has picked up, as exports jumped by 5.9% in January and resulted to New Zealand’s first trade surplus in seven months. This also marks the fifth consecutive monthly improvement in the trade balance, buoyed by a 25% increase in exports to China and an 11% rise in shipments to Australia.

 

BOJ Statement (April 28, Asian session)

Last but certainly not least is BOJ Governor Kuroda and his fellow BOJ officials who are set to make their rate statement on Thursday’s Asian session. If you recall, yen traders seemed eager to price in their expectations for additional easing as early as last week, thinking that Japanese central bankers would need to step up their stimulus game to have a more sustained effect on the markets.

Why they might ease policy: Word through the grapevine is that senior BOJ officials are thinking of pushing deposit rates much deeper into negative territory or possibly introducing negative lending rates to complement these. Keep in mind that policymakers have been pulling out all the stops this year, implementing negative rates and jawboning the yen… but these don’t seem to be producing their desired results so far.

For one, economic data has still been deteriorating, particularly when it comes to manufacturing conditions and domestic demand. It doesn’t help that the recent earthquakes are likely to put Japan’s economic performance on much shakier ground. And as with most major economies these days, inflationary pressures are also weak and the yen’s rapid appreciation is putting an additional drag on local price levels. The BOJ might need to act and act fast!

Why they might sit on their hands: Easing speculations subsided earlier this week when Japanese Prime Minister Abe shared that the government will create an additional budget for earthquake rebuilding efforts, reducing the pressure on the central bank to dole out stimulus. In addition, BOJ policymakers might need more time to assess the impact of their decision to enforce negative deposit rates, which came into effect just this February.

There you have it, ladies and gents! With all these catalysts lined up, it’s shaping up to be an eventful trading week so don’t forget to make the necessary risk adjustments with your setups. Good luck!