There are four central bank events set to take place in the coming week, which means opportunities to make profits in the forex market. One of the main concepts in fundamental analysis is that monetary policies usually have a huge say on currency price action since it determines the amount of cash in circulation or the rate of return on holding a country’s assets, thereby influencing demand for its currency.
Although interest rate decisions usually make the biggest impact on price movement, monetary policy meetings or speeches by central bankers also contain clues that shape market expectations. In the next few days, you should watch out for these events:
First up is the release of the RBA monetary policy meeting minutes, which should shed more light on whether central bank officials are still confident about letting go of their easing bias. With the exception of the Q4 2013 GDP report and employment figures, data from Australia has been mostly weak lately as declines in construction work done and private capital expenditure convinced some market analysts to downgrade growth expectations.
However, the previous monetary policy announcement revealed that the RBA is likely to keep interest rates on hold for the meantime. It would be interesting to see though if some policymakers dissented or if there were suggestions to use an interest rate cut to spur Aussie weakness and boost competitiveness in the export industry. In that case, AUD/USD might erase some of its recent gains and retreat to the RBA’s desired trading levels.
Trading Central Bank Events
Next, the BOE is set to publish the number of policymaker’s votes on asset purchases and interest rates. No changes were made in their latest rate announcement, but traders are eager to find out whether the votes were unanimous or not. So far, data from the U.K. has been relatively stable and within expectations. This made the BOE one of the more hawkish central banks out there, as Governor Carney has spoken of using forward guidance to manage market interest rate expectations. With more improvements seen in the U.K. economy in the past few weeks, some are expecting to see another round of growth and inflation upgrades which could provide support for the pound.
The biggest event among the central bank happenings lined up for the upcoming week is the FOMC statement. No monetary policy changes are likely to be made and the Fed is still expected to carry on with its taper plan. Fed Chairperson Janet Yellen will give her assessment and outlook for the U.S. economy in the press conference that follows. Recall that she brushed off the recent slowdown in hiring and overall economic performance as weather-related so the dollar’s movement might hinge on her take on more recent data.
Last but not least is the SNB rate decision, which doesn’t usually start a ruckus in the markets unless the Swiss central bank decides to intervene in forex trading. If you take a look at franc price action a few years back, you’d notice that there were some nasty spikes every now and then when the SNB tries to engineer a depreciation of its currency.
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