Previews for 3 of the Major Banks

This week sees policy meetings from three major central banks as the market prepares for the March meeting cycle, which is expected to deliver further tightening. However, some central banks, such as the BOC, are already reaching the point of pausing, while the BOJ remains reluctant to tighten despite inflation continuing to rise.

Will Lowe Signal Another 25bps?

The latest poll by Reuters shows a near-unanimous expectation that the RBA will hike by another 25bps, bringing rates to 3.60%. The move is seen as a continuation of the shift in RBA's shift after the last meeting in which it also raised by a quarter of a basis point. That was after Q4 CPI came in unexpectedly hot, prompting a reevaluation of the RBA's policy. Economists are also expecting the RBA to strongly suggest that another rate hike is to be expected after the next meeting. But, by then, the new inflation data for Q1 should be in, and Philip Lowe might emphasize that the bank will be data-dependent instead.

BOC to Take a Pause and Watch Data

According to the latest survey of economists, not only is the BOC expected to keep rates on hold at the next meeting but to keep policy at 4.5% for the rest of the year. Canada has seen inflation coming down faster than its southern neighbour, but the economy is seen in a more challenging position. Although, the number of jobs created in January saw an extraordinary spike. The consensus appears that it was a one-off, and the labour market will return to much more modest growth. The BOC isn't expected to give guidance for the whole year, of course, and the consensus is for a repeat from the last time rates were held steady: taking a pause now, but will watch the data.

Kuroda Unlikely to Surprise in Last Meeting

In the final meeting to be helmed by Kuroda, the consensus is that policy will remain unchanged. However, inflation in Japan rose to 4.2%, doubling the BOJ's target. Reports suggest that Japanese unions are pushing for an average 4.5% salary increase this year, which could put further inflationary pressure. Potential changes are expected to be saved for the new Governor, widely expected to be Kazuo Ueda. Some speculate this could be the opportunity to announce the succession formally. 

AUD/USD

Of the banks, RBA is the only one that might surprise by signalling another 25bps hike at the next meeting. This might drive the Aussie towards 0.6918 in the medium term to complete the right shoulder of a potential H&S pattern. It would require 67 cents to be the finished neckline low and a break past the peak of 0.6785 in the short term. It might also lead to a further upside towards 0.7036. If prices slide instead, losing the floor at the round support might open the door to 0.6650 or even 0.6587 and still form the H&S.

Source: Spreadex

Key Takeaways

Three of the major central banks are expected to meet this week. The RBA is expected to raise rates by 25 basis points and potentially signal another hike at their upcoming meeting; the BOC is expected to keep policy at 4.5% for the rest of the year as it's likely to take a break and watch forthcoming data and the BOJ is not expected to make any changes at the last meeting helmed by Governor Kuroda.