Australian dollar supported before today’s RBA meeting
The Australian dollar traded in a tight range yesterday, and is likely to continue to consolidate before todays all important Reserve Bank (RBA) meeting. The RBA is expected to keep the cash rate on hold today, but if the RBA were to reinstate a tightening bias in their commentary, the AUD is expected to rally considerably as the market prices in potential further rate hikes.
Since the last RBA board meeting, the latest inflation figures released were stronger than expected, leading to a number of market participants pushing back their first forecast of rate cuts.
If the commentary does not hint at potential future rate hikes, the AUD may sell off. The market will also scrutinise the RBA’s latest inflation forecasts, further adding in volatility for the Aussie.
New Zealand Dollar stable as RBA approaches
The New Zealand dollar was little changed yesterday and may take some direction today from the RBA decision today. The direction of future Australian interest rate policy will influence the Kiwi, as the market potentially reprices the path of future New Zealand interest rates.
Further, the Organisation for Economic Cooperation and Development (OECD) believes the RBNZ has limited scope to cut interest rates this year and shouldn’t ease policy until its sure inflation returns to target.
Looking forward there are no major data releases for the Kiwi, so it will largely take direction from the markets general risk tone, and as the market prices in the future interest rate policy.
Pound subdued as BOE meeting approaches
The Pound has traded in a tight range overnight due to the local holiday in the UK. Potential volatility awaits though as the latest Bank of England (BOE) interest rate decision awaits on Thursday. Recent commentary from a number of MPC members have hinted that interest rate cuts may not be too far away and could possibly be sooner than financial markets expect.
Any further hints from the meeting that cuts are soon approaching, could lead to a selloff in the GBP. The voting by MPC members will also be closely scrutinized.
The release of the latest GDP figures on Friday also has the potential to cause some volatility in the GBP.
USD little changed after quiet overnight session
The USD was little changed overnight after a relatively quiet session overnight. With no major data released for the rest of the week, the USD will take direction from the general risk tone of the market.
Any changes in the BOE’s interest rate policy on Thursday may also cause some volatility in the USD.
Data Releases
May 7th 14:30 AUD RBA Interest Rate Decision
May 7th 18:30 GBP Construction PMI
May 7th 19:30 EUR Retail Sales m/m