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RBA, BOE Minutes in Focus Ahead of the Holiday

RBA, BOE Minutes in Focus Ahead of the Holiday

2011-12-19 11:00:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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Price action this week unfolded mostly as expected, considering the preceding week’s theatrics. The post-Euro-zone summit reaction was weak, ultimately leading to a sell-off of higher yielding currencies and risk-correlated assets, as any solutions set forth proved to be deemed inadequate by market participants.

Of the short falls the summit yielded, perhaps the most pertinent (lack of) developments were that no European lender of last resort stepped forward, while any promises of fiscal integration appears to be just more empty words. For now, a disorderly Euro-zone breakup can be ruled out of the question, but with Eurobonds off the table for the time being, and the European Central Bank choosing not to print Euros to save the periphery, the downward trajectory of the crisis remains – although the descent may not be so steep now.

With that said, in terms of scheduled event risk for the coming week, there’s not much by way of significant data due that would alter the current landscape nor the foreseeable future’s given broadly thinner liquidity conditions. Two central banks’ minutes are due this week, which should generate additional price action given the results of the two meetings: the Reserve Bank of Australia cut rates for the second consecutive month; and the Bank of England has been considering implementing further easing measures, the scope of which should have been discussed at the previous meeting. Also, growth figures for New Zealand then Britain will be released, with U.S. durable goods orders for November due to round out the week.

AUD Reserve Bank's Board August Minutes: December 20 – 00:30 GMT

At its meeting on December 6, the Board of the Reserve Bank of Australia voted to lower the cash rate from 4.50 percent to 4.25. This move was widely anticipated by markets, and the rhetoric issued thereafter falls broadly in line with what was expected. The central bank cut its forecast for economic growth and called for softer inflationary pressures over the next two years as financial turmoil rooted in Europe and the United States is likely to weigh on global growth prospects going forward. Additionally, slowed emerging market growth, most notably by China, also weighed on Australian policymakers’ outlook. Given these observations, it appears that the RBA is taking an increasingly dovish outlook. Should this position be emphasized in the bank’s minutes, then a weaker Australian Dollar is expected thereafter.

GBP Bank of England Minutes: December 21 – 09:30 GMT

On December 8, the Bank of England voted to maintain the key interest rate at 0.5 percent. Additionally, the Monetary Policy Committee held the target of its bond program at £275 billion. The country’s inflation rate jumped to 5.2 percentin September, although the rate has since subsided to 4.8 percent in November (this data was not available at the time of the rate decision). Regardless, the Bank of England looks unlikely to raise rates despite price pressures persisting at more than double its target of 2 percent.Despite the high rate, policymakers at the Bank of England agree that the economic outlook is not stable enough to withstand higher interest rates. The minutes of the meeting will be published on December 21 and will include highlights of the board meeting as well as forecasts of future growth for the country. The key information will be the Bank of England’s decision in regards to expanding its asset purchase program.

NZD New Zealand Gross Domestic Product (YoY) (3Q): December 2121:45 GMT

According to a Bloomberg News survey, the New Zealand economy is expected to have experienced accelerated growth in the third quarter, with the forecast print coming in at 2.2 percent from 1.5 percent in the second quarter, on a yearly basis. On a quarter-by-quarter gauge, growth is forecasted to have jumped to 0.6 percent from 0.1 percentData released the past few weeks hasn’t been necessarily supportive of such a strong growth reading, with the unemployment rate rising surprisingly in the third quarter. Inflation fell at a faster-than-expected rate in the third quarter, while export figures showed slight contraction from July through September. In an otherwise quiet week for the Kiwi, the GDP print offers the greatest opportunity for volatility in the NZD/USD. Join a DailyFX analyst for live coverage of event!

GBP United Kingdom Gross Domestic Product (YoY) (3Q F): December 22 – 09:30 GMT

Although this is the third and final release of the United Kingdom’s third quarter growth figure, it remains a key event amid an otherwise quiet week. Growth is expected to be confirmed at 0.5 percent quarter-over-quarter and 0.5 percent year-over-year. The British economy is facing numerous headwinds, not limited to the potential fallout of the Euro-zone crisis. Industrial and manufacturing production has been on a steady decline over the better part of the year, while the combination of high inflation and high unemployment has created a stagflating environment. Another subdued growth reading increases the likelihood of further easing by the Bank of England, weighing on the Sterling in the coming periods.

USD United States Durable Goods Orders (NOV): December 23 – 13:30 GMT

Although the U.S. GDP revision earlier in the weekis important, considering it is unexpected to show any change, the durable goods figure for November has the potential to be more market moving. The early revision for the October figure shows that orders did not contract as much as previously thought, now at -0.5 percent versus the -0.7 percent figure originally reported. Still, that has had little influence on the forecast for November. According to a Bloomberg News survey, orders are expected to have jumped by 2.0 percent; July was the last time there was growth of 2.0 percent or greater. As a proxy to consumer spending on goods with a lifetime of three years or more, the report is often seen as a gauge of future manufacturing production. While a strong reading will likely stir risk-appetite and a U.S. Dollar sell-off in the near-term, another ‘positive’ data release weighs heavy on further quantitative easing measures by the Federal Reserve.

Rate Hike Probabilities / Basis Point Expectations (12-months)

RBA_BOE_Minutes_in_Focus_Ahead_of_the_Holiday_body_Picture_1.png, RBA, BOE Minutes in Focus Ahead of the Holiday

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

--- Written by Christopher Vecchio, Currency Analyst

To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com.

Follow him on Twitter at @CVecchioFX

To be added to Christopher’s e-mail distribution list, send an e-mail with subject line "Distribution List" to cvecchio@dailyfx.com.

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