Market Overview

Previewing This Week's Central Bank Decisions

Previewing This Week's Central Bank Decisions

This week, five key central banks are expected to release their updated interest rate decisions and comment on the state of both domestic economies. The European Central Bank and the Bank of England should steal the headlines and attract the most attention, however the Reserve Bank of Australia, the Bank of Canada, and the Reserve Bank of New Zealand should also garner attention of trades, especially those in the forex markets.

To kick off the week, the Reserve Bank of Australia (RBA) is set to release its interest rate decision at 11:30 pm EST Monday night. The Bank is expected to cut rates to 3.00 percent from 3.25 percent after holding rates at the previous meeting when markets had been expecting a cut. One rationale for a rate cut is, in the face of economic uncertainty surrounding issues such as the Fiscal Cliff, the Japanese elections, and the slow turnaround in China, the Bank cannot leave the economy exposed without stimulus for four months. Since the Bank did not cut last month and since the next meeting is not until February, it would mean that any shocks could not be absorbed my monetary stimulus until then. Also, continued easing of inflation and home price rises should allow the Bank room to ease.

On Tuesday, the Bank of Canada is set to release its interest rate decision at 9:00 am EST. Although the Bank is expected to keep rates on hold at 1.00 percent, lots of focus will be paid to this announcement as Bank of Canada Governor Mark Carney has been nominated as the successor to Bank of England Governor Mervyn King, the first foreigner to ever be nominated to such a position. It will be interesting to see if the BoC thus comments on potential succession plans or future policy changes under the next regime. Also, comments on the strength of the Canadian lumber industry should be focused on as the lumber industry is highly dependent on the U.S. housing market.

On Wednesday, the Reserve Bank of New Zealand (RBNZ) is expected to keep rates on hold. Although the economy is rather small, currency traders like to trade the so-called "Kiwi" crosses as their tends to be more price volatility in that market. Thus, the interest rate decision could create trading opportunities for those trading the Asian session.

Later in the week come the big guns, the Bank of England and the European Central Bank. First, the Bank of England is expected to keep rates on hold at 0.5 percent and keep the asset purchase program constant at 375 billion pounds (approximately $600 billion). No press conference is scheduled from the BoE however, as the Bank only has such conferences at select meetings. Just 45 minutes after the BoE, Mario Draghi is expected to keep interest rates on hold at 0.75 percent for the ECB. However, eyes will be on the press conference at 8:30 am EST for comments on the OMT program and the progress on other policy motives such as the Banking Union.

All of these announcements come in a busy period of economic data, so there will be plenty of trading volatility this week for traders to look for. This week will definitely be a traders market, that is the only certainty.


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