We have 3 events this week which should trigger significant market volatility in the week ahead.
Federal Reserve Interest Rate Decision –
On Wednesday we have the Fed and no change is expected. They will be optimistic but with ongoing problems in Europe with the BREXIT fallout they will be cautious in terms of calming the markets. We see any dollar pull-backs as buying opportunities and expect it to remain firm due to growing risk aversion.
Australian Consumer Price Index –
On Wednesday which will be watched closely to see if the RBA are expected to cut rates next month. The last Y/Y reading was 1.3% and a number in line with this or worse has the potential to send the Aussie dollar down. We see no reason why inflation should have picked up on the last quarter and expect a bearish number.
BoJ Policy Interest Rate Decision –
On Friday and the market expects a big stimulus package from the BoJ but with market expectations so high and the JPY oversold, we expect a correction. We don’t expect a big stimulus package and see the JPY moving higher on all major currencies.
We have seen the G-20 meet this weekend and in their joint statement they said:
“In light of recent developments, we reiterate our determination to use all policy tools – monetary, fiscal and structural – individually and collectively to achieve our goal of strong, sustainable, balanced and inclusive growth.”
(G20 Statement) They have said this before but nothing of note will happen – central banks will continue to be in effective and create debt and the deep structural changes needed in many nations simply won’t happen.