The Week Ahead – CAD, AUD rate decisions ahead, Fed enters blackout period

With US equities flip flopping recently on the market’s perception of a Fed Pivot (or not) and seemingly changing with the wind on any inflation data or jaw boning from Fed members, the week ahead might offer a welcome respite as the Fed goes into its black out period and US data is light on the ground.

The major risk events for FX traders look to be the RBA and BoC policy meetings on Tuesday and Thursday respectively, both decisions are on a knife edge with rates markets evenly spilt on the size of the hikes, or in the RBA’s case, whether they hike at all.

RBA

With a shock miss on the Australian CPI figure last week, coming in significantly lower than expected and fuelling hopes that inflation has peaked, unsurprisingly the odds for no hike in tomorrow’s meeting have increased dramatically in the last seven days. The week started with rates futures giving a near 70% chance of a hike, by Fridays close that has come down to a 54% chance of a 25bp hike.

This set’s up Tuesday’s meeting as a pivotal one, only a couple of short months ago 50bp hikes seemed the new norm and now there is an almost 50% chance of no hikes coming out of this meeting. Whatever the RBA does volatility in the AUD and ASX 200 are very likely.

AUDUSD has performed well in recent weeks but has seen some resistance around the 68.4c level, consolidating in a range. A hike at Tuesday’s meeting could see it break through this level and with improved risk sentiment get more traders convinced it’s on a bull run.

Bank of Canada

This will be another interesting Central Bank meeting with both markets and economists split down the middle on whether it will be a 25bp or 50bp hike. There is good arguments for both options. with the 25bp camp arguing there are signs of softening in the economy and the housing market looking vulnerable, whilst a robust 3Q GDP outcome, a tight job market and elevated inflation readings having the hawks predicting a 50bp hike.

The CAD has struggled against the USD in recent weeks, even though the greenback has been under pressure and underperformed most other currencies, CAD traders will be watching this BoC rate decision closely as it will likely drive the pair in the week ahead.

Other figures of note this week include Eurozone, Australia and Japan GDP figures which will show how the global economy is recovering along with US consumer sentiment figures later in the week.