RBA and BOJ to Set Pace in FX Market

Central banks are back in the spotlight in the week ahead, with decisions on monetary policy due in Australia and Japan, amid expectations of a looming U.S. interest rate hike by year-end.

Policymakers down under will meet on Tuesday and analysts expect the Reserve Bank of Australia (RBA) to stand pat on its benchmark interest rate. All 23 economists polled by Reuters see the RBA’s cash rate unchanged at a record low of 2 percent, as a weaker Australian dollar provides support for the economy.

“Services exports, including tourism and education exports, have picked up and the lower currency is also beginning to discourage services imports. Net services exports have contributed more to gross domestic product (GDP) growth over the past year than resources exports, in a clear sign that the lower [Aussie dollar] is working,” Paul Bloxham, chief economist for Australia & New Zealand at HSBC, wrote in a note.

Analysts at Moody’s Analytics agree, adding that a further rate cut might no longer be necessary if the local currency remains on a downtrend.

“Financial markets have at least one more 25-basis-point interest rate cut priced in for the next 12 months. We think that as long as downward pressure on the currency remains, alongside continued improvement in the non-mining economy, further interest rate cuts will not occur,” Moody’s said in a note.


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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza