The Reserve Bank of Australia’s (RBA) Governors have had their time to speak this week. Nothing of huge astonishment was said. The RBA’s latest monetary meeting minutes did however shed some light on recent changes in China’s growth and a few key risks in Australia’s Economy.
The Minutes gave investors insight into why the Reserve Bank decided a rate cut was necessary at the last Rate decision on the 5th May. Contributing factors included slacking growth in the Australian economy, weaker employment figures and a sluggish inflation rate.
The RBA also noted that further depreciation of the exchange rate seemed to be both likely and necessary. This comment contradicts the actual affects of the latest rate cut, where the Australian Dollar rallied against a basket of currencies after the Official Cash Rate (OCR) announcement.
To end the week we have key announcements from Bank of England (BoE) Governor Mark Carney, Head of the European Central Bank (ECB), Mario Draghi and finally President of The Federal Reserve, Janet Yellen.
It is expected that Governor Carney should provide some guidance on the Banks view on the latest Inflation figure in the UK. The figure fell below zero to a new low of -0.1% for the first time the annualised Consumer Price Index (CPI) has been negative since 1960.
Experts are currently debating whether this figure indicated that the UK economy is experiencing deflation or a case of benign negative inflation.
The BoE targets inflation to be at 2% for the bank to consider increasing Interest Rates, the timing of which is highly anticipated by investors.
The Inflation Rate Report out earlier this week suggests that inflation will remain low until late 2017. Economic principle suggests that the results of the latest Inflation figure out of the UK should have resulted in gains to the AUD/GBP Exchange rate however this did not occur.
Mario Draghi is likely to cause a significant amount of market volatility over today and tomorrow. He will be involved in a number of announcements for the ECB including panel discussion in Portugal on ‘Inflation and Unemployment in Europe’.
It is widely expected that he will speculate on the current levels of Quantitative Easing (QE) and may propose more extreme measures of monetary loosening in an attempt to discourage further investment in the Euro.
Chairwomen Janet Yellen is speaking at the US Economic Outlook for the Chamber of Commerce in Rhode Island. The recent message from The Fed at policy meetings has been that the next monetary policy movement will be a rate rise; however with the disclaimer that precaution would be taken. Many investors are expecting rate hikes as early as July for the US economy.
Chairwomen Yellen’s speech on Friday during the offshore session at the may provide some indication on the timing.
There is a lack of local data out of the Australian economy today and the Australian Dollar is expected to experience plenty of movement against the majors, (AUD/USD, AUD/GBP, AUD/EUR) leading into offshore central bank announcements to close out the trading week.