When it comes to event risk for the Australian Dollar they do not come any bigger than this week. The potential for volatility in the Antipodean currency is very real over the next 2-3 days. The Reserve Bank of Australia releases it minutes from the October meeting where Glenn Stevens, the head of the RBA and his fellow Governors’ met behind closed doors to keep the official cash rate stable .While at face value they kept rates on hold, we were not privy to any dissention in the ranks as to how they came to this decision.
We will find that out today with the release of the minutes. Why these are so important is even though rates were kept on hold, if there was an increase in the amount of Governors’ voting for a rate rise or cut than the previous meeting, the market which is always forward looking , will make needed adjustments in their Australian Dollar portfolio to reflect this. In other words, they will buy or sell the Aussie based upon an expectation of future movements
Inflation is also one of the most important data points that any Central Bank looks at when deciding whether to raise or lower Interest Rates.CPI or the Consumer Price Index helps to measure inflation and how it is tracking compared to the targeted rate that central banks like inflation to remain within, and this headline number will be released Wednesday 10.30 AEST
The RBAs targeted rate falls between 2-3% and forecasts are for inflation to slip from last month’s reading of 3% to 2.3%. If analysts are correct, the flow on effect of this lower expectation could weigh heavily on the Aussie Dollar. Central Bankers show a lot more reluctance to raise rates or even keep them on hold when there is a lack of demand for goods and services. This can help keeps prices suppressed which has a flow on effect of lower inflation reflecting a slowing economy.
China is Australia’s largest trading partner which reflects in the Australian Dollar every time there is any data that points to a slowing or growing Chinese economy. Well we have that in spades today with Chinese GDP , Industrial Production and Retail Sales all set to keep traders on their toes as they digest whether Chinas economic growth is putting the brake on or whether it is business as usual.
To try and predict what any given currency pair will do from one day to the next is pure speculation and I will leave that for people braver than myself. What I am happy to predict is , we should see volatility come to the fore in the Aussie Dollar over the next two days .