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Fed, BoE, BoJ or RBA - Which Rate Decision Poses Biggest Threat

Fed, BoE, BoJ or RBA - Which Rate Decision Poses Biggest Threat

2016-10-29 05:36:00
John Kicklighter, Chief Strategist
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Talking Points:

  • There are four major central banks scheduled to deliberate on monetary policy this coming week
  • The highest profile policy event is the Fed decision, but a risk-sensitive FOMC is very unlikely to alter course
  • In contrast, the Bank of England and Bank of Japan will draw market reaction almost regardless of outcome

See what live coverage is scheduled to cover key event risk for the FX and capital markets on the DailyFX Webinar Calendar.

Monetary policy remains one of the most active drivers in the markets and yet still poses one of the greatest untapped risks for the financial system given the distortion it has contributed to through the years. That makes the collection of central bank rate decisions on tap this week a particularly concentrated threat to an already delicate stability. For preparatory headline space, the Federal Reserve's policy decision on Wednesday (18:00 GMT) will draw the most interest. That said, it is also the event least like to offer a surprise. While the market is very sensitive to what the world's largest policy body is doing and planning, the long-awaited follow up hike to last December's 'liftoff' is very unlikely to come this week. What's more, the market expects that to be the case.

In contrast to the attention and restraint of the Fed, the Bank of England's (BoE) and Bank of Japan's (BoJ) events are going to generate market friction regardless of the outcome. For the former, this is the quarterly event where the comprehensive 'Quarterly Inflation Report' is due. More importantly, 'Brexit' fear has dominated the headlines and spurred considerable volatility for the British Pound. With suggestions of further easing in 2016 at the previous meeting, there are heavy expectations of what will happen and how much influence it will afford. Meanwhile, the BoJ has take a step away from driving its ship through the storm of skepticism and disinflation. The shift in focus to target a 0 percent 10-year JGB yield was akin to waving a white flag, but the market has yet to treat it as such. Their efforts combined with the group's outlook may reinforce this reality.

For the Reserve Bank of Australia's (RBA) gathering, no change is likely. Yet, its balance near neutral can generate a bigger reaction from the local currency than the Fed's would for the Dollar - though there certainly is a bias with the Aussie Dollar's reaction. Another aspect that must not be overlooked in this event is the evaluation of global monetary policy and its sway over global investor sentiment and general market stability. Confidence is visibly starting to slip. Is there a tipping point where it changes from a mere slide to a collapse? We discuss this collective event risk in today's Strategy Video.

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