Intraday Market Thoughts

Central Banks Rate Announcements Preview by Patrik Urban

by Patrik Urban
Sep 5, 2011 12:31

USD extends robustness across the board amid heightened risk aversion. Labor Day holidays in the US and in Canada will mean narrow trading ranges and low liquidity with the risk of erratic moves. This week will bring interest rates announcements from several major central banks. Ashraf's Premium Insights return tomorrow. All 4 trades shorting EUR have hit their limits so did the gold longs.

AUD has been declining ahead of the upcoming RBA announcement that is due on Tuesday at 12:30 am ET. All 25 economists surveyed by Bloomberg News expect that Australia Cash will stay steady at 4.75%. This notion is supported by RBA governor Stevens who earlier mentioned that while there is some turbulence in the financial markets, monetary policy will not be changed. The implied probability of an interest rate cut surged after disappointing labor market data four weeks ago, but this probability decreased and currently stands at around 18%.

The Bank of Japan will announce rates on Tuesday night as well and their Overnight Call Rate is also seen unchanged at below 0.1%. Market participants have started to price in further easing by the BOJ and many expect that the BOJ will follow the FED in their actions.

Wednesday will bring the Bank of Canada rate statement and the Overnight Rate is also likely to stay unchanged at 1%. While lower rates are not expected, many analysts now predict that next rate hike will come at the end of 2012 or beginning of 2013.

Thursday should prove to be an exciting day for FX traders as both BOE and ECB will announce their rate decisions. The BOE will publish theirs at 7am ET and the rates should stay unchanged. The opposition to further QE seems to be still strong but in light of deteriorating fundamentals, new QE is becoming somewhat more possible. Watch for the Asset Purchase Facility that currently stands at GBP 200 bln. Last week Adam Posen a Monetary Policy Committee member was quoted by Reuters that G7 countries should provide more easing in order to support growth. It will be interesting to see whether he was able to convince other MPC members.

The ECB announces its rate decision at 7:45 am ET and even the European rate is anticipated to stay at 1.5%. However, keep in mind an article published by Bloomberg last week that quoted the CEO of PIMCO Mohamed El-Erian who believes the ECB may be forced to cut rates as the risk of a recession in the Eurozone has increased to 50% in his view. Even if rates are kept steady, watch for ECB press conference at 8:30 am ET for any dovish comments.



Latest IMTs