This week we will receive important interest rate policy thought and guidance as Central Bank minutes from Australia, the FOMC of the US, and the European Central Bank are all released.
In addition, we have inflation gauges from Canada and Japan, and we await a speech from Federal Reserve Chair Jerome Powell, who will be in Jackson Hole at the annual Federal Reserve Policy Symposium.
To start with CPI data and it is interesting to me that analysts predict a fall for the yearly figures for Canada and Japan in July’s data. Analysts are expecting Canadian CPI to fall to 1.7% from 2.0% and Japanese CPI to fall to 0.5% from 0.7%. Recent CPI numbers from China, the US, the UK, Australia and Germany have all risen, so perhaps this may be the case for Canada and Japan too.
The Reserve bank of Australia minutes will also be of interest. Last week’s excellent employment report, with 41,100 new jobs created (of which 34,500 were full time), coupled with rising inflation, make me wonder whether Australia and New Zealand, both of which have lowered their respective interest rates to 1.0%, haven’t just stolen a march on the US in stimulating their economies. New Zealand’s second-quarter unemployment also fell from 4.2% to 3.9% as reported on 5th August. Although the carry is negative when holding long AUDUSD and long NZDUSD trades, I can see that we may have a base here for Australia and New Zealand in terms of their current borrowing costs.
The Fed is in the spotlight on Wednesday as it releases its minutes. We will get some more detail about individual panel members’ logic and rationale regarding last month’s interest rate cut. The pressure is on for a further cut in September as evidenced in the spread between 2 year and 10-year bonds and a yield curve in danger of inverting. The markets are pushing for a cut. Federal Reserve Chair Jerome Powell’s speech on Friday will, without doubt, be a market mover.
The ECB minutes which will be released on Thursday are likely to show arguments for additional ECB easing whether that be by cutting interest rates or by bond purchases.
The UK is heading for Brexit no-deal and a possible general election. EURGBP, having reached highs of 0.9327 and retraced to 0.9165 after a sustained bullish run is looking less of a one-way bet.
US President Trump says the US and China are “talking” and so the VIX and Gold have receded. That is until the next destabilizing tweet or shock to the markets. Watch out for Wednesday’s FOMC minutes and Friday’s speech by Powell as two potential shocks. And why not start to follow @realDonaldTrump to get first-hand tweets of the US President’s news and views.
Good luck and good trading! Ben Robson
Ben Robson is the CEO of Spectrex Commodities and author of Currency Kings- How Billionaire Traders Made Their Fortune Trading Forex And How You Can Too.
