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Traders Look for Clues in Policy Statements

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After a quiet Monday, markets should find some interest in Australian and US central banks this week. Tomorrow the RBA will decide on the Australian overnight cash rate; analysts are not expecting any change this month as the RBA has signalled that any change in interest rates would be preceded by a change in the wording of the bank’s statement. Because of this, the statement is in focus as much as the rate decision for clues as to which way the RBA will move next.

With the AUD falling over 750 pips since August, the RBA is likely to be less concerned about the exchange rate and more focused on controlling housing prices. While macro prudential controls have been revealed as one potential measure, it is quite possible that interest rates rise in tandem to assist; this is reflected in the Shadow RBA moving towards rate rises this week. With the AUD falling substantially already, imported inflation is also likely to begin to show up in the coming months, giving the RBA a further degree of room to manoeuvre. Traders will be watching the statement for any signs of this intention, and Australian employment data will follow on Thursday.

On Wednesday the FOMC Meeting Minutes will be released. While nothing dramatic is expected to be released, this is the final minutes release before QE is scheduled to end; it will be interesting to read for the battle between dovish and hawkish members for a signal as to when the Fed will change the wording of its statement. There are few more important words at the moment than ‘considerable time’ and economists are waiting for the removal of this sentence to indicate that an interest rate rise is coming in the near future.

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