Last week we had a relatively quiet data slate news wise out of the US with USDollar trading sideways until the ECB policy announcement where the ECB announced that the monthly asset purchase program would be extended for 9 months with no indication of tapering giving Bears a great reason to continue selling EURUSD until next December.
In the UK the Supreme court heard the appeal for article 50 and have advised that a judgement will be passed in the new year though that May’s timetable will be followed. Over the weekend news was released that campaigners are planning to inform the government that they will launch a high court action to keep Britain in the single market with the aim of a softer Brexit that is not damaging for the UK or Europe.
Australia kept rates on hold at their rate meeting last week with a statement very similar to the September meeting. The RBA is still keeping a close eye on the job market, housing market and inflation and said in the statement that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time. So no indication of future action so it seems Australia’s rates may be on hold for some time. GDP Q3 was released last week with a very poor result.
The Reserve Bank Governer Graeme Wheeler spoke last week in New Zealand saying that the NZ economy is performing well despite global risks though that there is still concern over slow GDP growth per capita, disappointing labour productivity growth, a higher than desirable house price inflation and an exchange rate is that is higher than economic fundamentals deem appropriate. The RBNZ expect December quarter 2016 CPI to show inflation is moving back within the 1 to 3 percent target band. Heading into 2017 the RBNZ are concerned about international political and economic developments and their implications for the global trading environment and mentioned a concern about a correction in the New Zealand housing market. Currently the RBNZ have not changed their view on the direction of monetary policy as outlined in the November statement.
The BOC kept rates on hold at last week’s meeting after a rebound in growth in Q3 with the BOC expecting more moderate growth in Q4. Inflation is still below expectations mostly due to lower food prices. The recent recovery in the oil price has helped CAD. Opec and non-Opec producers reached their first deal since 2001 on Saturday to ease global glut. It remains to be seen if Opec and non-Opec members can stick to the deal with Saudi Arabia already having pumped record-high amounts of oil in November.
Japanese Yen continued to weaken last week off a stronger USDollar and higher US 10Y yield with the Nikkei continuing its bullish rally. The BOJ meeting has been moved from the 14 December to the 20 December.
This week we have two rate meetings; the FOMC and the BOE. Carney speaks on Wednesday so keep an eye on that for any indication of what to expect when the BOE meet on Thursday. At the last meeting the BOE indicated BOE called on government for fiscal stimulus, this was forecast in the August statement so I therefore think that the BOE will remain on course and look to measure the impact fiscal stimulus has on inflation before considering any change to the cash rate or asset purchase program.
The FOMC is the big one. In a speech by Bullard last week it was indicated that a 25 bps hike is very likely with the market having priced it in a raise of 50 – 75 bps at 94.9% according to the CME Group Fedwatch Tool. We will need to pay attention to what Yellen has to say about the rate path for 2017. With the Fed having been very dovish up until now I don’t see this changing and believe that the same rhetoric we have seen out of previous statements will stay on trend with future hikes being data dependant. If the market feels that the USDollar is overpriced we may see some profit taking and a correction in the USDollar and USDJPY. I see no reason why USDollar would not remain strong and Yen week leading up to the meeting.