BoJ announcement likely to involve more stimulus, not likely to see even more negative interest rates; Fed not expected to hike rates; RBNZ statement should point to further easing

It will again be a busy week for central bank meetings this week.  Events start with the US FOMC meeting on Wednesday (US time) where Fed Chair Yellen is widely expected to stand pat on rates as the risks posed by weak global growth on consumption and investment are likely to be prioritised over those posed by strong employment. The RBNZ decision, which follows shortly after, will be a closer run affair. Albeit the current majority also expects no move from the current NZ 2.25% cash rate. The statement should point to further easing however, and comments around the recent NZD strength would appear likely. Focus will then turn to the BOJ later in the session where the market expects a move to add further stimulus, most likely in the form of ETF equities purchases. Bond buying and a further move into negative rates are possible, but rated less likely by analysts given that the current policy is already extended on these fronts. Expect a busy day especially after Friday’s JPY plunge on the back of news that the BOJ was also considering loans to banks at negative interest rates in order to bolster bank lending.

Australia

The AUD has had a quiet start after the ANZAC holiday weekend which has seen it drift lower since Friday’s report. Lower commodity prices including oil and iron ore overnight which have fallen 2.5% and 3% respectively continued last week’s closing theme of reduced appeal for the commodity currencies. Weak global PMI data reads on Friday has also dampened market sentiment and led to a mild reduction in risk exposures. Offshore events have had a large impact on the AUD in recent times given the small amount of key local data flow. This should change a little this week with the release of the Q1 inflation numbers tomorrow. Monthly inflation gauges suggest that inflation should remain well contained during the quarter helped in part by a 13% fall in the price of petrol over the period. The “underlying” measure (ex. petrol) is forecast to grow 0.5% in the quarter and around 2% over the year, numbers which should ensure the RBA sticks to its current easing bias. Other items of interest during the week include export and import data for Q1 which is set for release on Thursday and Private Sector Credit numbers on Friday. A speech by the RBA assistant Governor Guy Debelle later in the day will also be watched for notes on the currency strength and views on the inflation result from earlier in the weekThe AUD has had a quiet start after the ANZAC holiday weekend which has seen it drift lower since Friday’s report. Lower commodity prices including oil and iron ore overnight which have fallen 2.5% and 3% respectively continued last week’s closing theme of reduced appeal for the commodity currencies. Weak global PMI data reads on Friday has also dampened market sentiment and led to a mild reduction in risk exposures. Offshore events have had a large impact on the AUD in recent times given the small amount of key local data flow. This should change a little this week with the release of the Q1 inflation numbers tomorrow. Monthly inflation gauges suggest that inflation should remain well contained during the quarter helped in part by a 13% fall in the price of petrol over the period. The “underlying” measure (ex. petrol) is forecast to grow 0.5% in the quarter and around 2% over the year, numbers which should ensure the RBA sticks to its current easing bias. Other items of interest during the week include export and import data for Q1 which is set for release on Thursday and Private Sector Credit numbers on Friday. A speech by the RBA assistant Governor Guy Debelle later in the day will also be watched for notes on the currency strength and views on the inflation result from earlier in the week.

New Zealand

The NZD has drifted lower since our report on Friday and starts the shortened week trading near its recent lows against the USD. Levels above .7000 which had not been seen since June last year proved short lived as the NZD spent the remainder of the week on the back foot as the appeal for the commodity currencies eased. The data wrap last week was dominated by the Q1 inflation release which came in slightly stronger than expectations. A small lift was also seen in the latest GDT dairy auction. This week’s focus centre’s squarely on the RBNZ OCR announcement on Thursday and the US FOMC announcement a few hours earlier. Expectations locally are for rates to be held at 2.25%, although one of the major four Australian banks is calling for another move lower. Areas of concern for the RBNZ which should prevent a cut will be the strong property market particularly in Auckland, which has now seen the average price of a home in the city become more expensive than Sydney. Emerging signs of inflation in the areas of the economy which are performing strongly such as accommodation and construction also favour a delay until June at least.

United States

The USD (DXY index) is drifting lower in trade so far this week. The move is eroding the gains which occurred on Friday which were driven in a large part by the strong sell-off seen in the JPY during the session. Data of interest last week included a notable fall in the latest housing starts numbers, gains in home prices and decline in manufacturing conditions in the Philadelphia region. Another fall was seen in the jobless claims numbers before the week concluded with an under-shoot in the April Manufacturing PMI data on Friday. Data released overnight which showed a decline in New Home Sales from the month prior, missed expectations although focus for the market was on other key events this week. Expectations for the FOMC meeting are strongly in favour of no move in rates although the real interest will centre on the Fed’s dot plot and management of the market’s rate hike expectations given the current difference between the markets and Fed’s rate trajectory. Economic releases of interest for the remainder of the week include tonight’s Consumer Confidence, Richmond Fed Manufacturing and Durable Goods releases. Pending Home Sales numbers will feature prior to the FOMC release on Wednesday and will be followed by the “advance” Q1 GDP numbers later in the day. Data on personal income, spending and employment costs will feature amongst other releases on Friday.

Europe

The EUR is drifting higher in trade against the USD this week. The move comes after the losses which were seen late last week after the ECB meeting and mainly weaker than expected euro-area PMI data released in Europe on Friday. Events last week were dominated by the central bank meeting which saw the ECB hold its key interest rates steady. Comments from President Draghi included ones which warned over the potential for euro-zone inflation to again turn negative in coming months and over the risks to the economic outlook. The ECB announced that they had started to expand monthly purchases to 80bn Euros and were focussing on the implementation of the non-standard measures decided upon at the last March 10 meeting. German IFO data released overnight showed the business climate index coming in lower than expectations. Other indicators of interest this week include German employment, retail sales and inflation indicators.

United Kingdom