Overview and expectations September 18, 2018 including Australia Monetary Policy Meeting Minutes
This overview highlights the most important economic events taking place today: Australia Monetary Policy Meeting Minutes and UK Consumer Price Index. Traders can benefit from anticipating and understanding how these data releases can affect the markets.
Today’s overview focuses on Australia Monetary Policy Meeting Minutes and UK Consumer Price Index. This data can affect the markets and the respective country’s currency and traders can benefit by anticipating those effects.
EXPECT MONETARY POLICY TO HAVE LITTLE IMPACT ON AUD
The Reserve Bank of Australia (RBA) Monetary Policy Meeting Minutes are a record of the bank’s policy-setting meeting. It contains detailed insights into the economic conditions that influenced the rate decision.
More dovish than expected monetary policy is generally negative for the Australian dollar (AUD), while more hawkish than expectations is generally positive for the AUD.
In its August Monetary Policy Meeting Minutes, Australia’s central bank said that it had no plans to adjust monetary policy in the short-term and indicated possible risks from global trade tensions and the effect of a drought that has struck rural Australia.
The RBA said its monetary policy would support economic growth and saw “no strong case for a near-term adjustment”.
According to Paul Dales, chief Australia and New Zealand economist for Capital Economics, the language in the minutes supported that the “RBA is becoming more confident in its optimistic forecasts for GDP growth and inflation”. He indicated that even though the central bank said it was not expecting to raise rates for some time, RBA governor Philip Lowe told Australians “to make sure your finances can withstand a lift in interest rates”.
The RBA made reference to trade tensions, commenting that “the direction of international trade policy in the United States continued to be a source of uncertainty for the global outlook”.
In August’s RBA Monetary Policy statement, forecasts for the Australian economy were mainly unchanged. GDP growth expectations are slightly above 3% for 2018 and 2019. After the release of the minutes, there was a minimal effect on the AUD.
Unchanged monetary policy is consistent with sustainable economic growth and thus bullish for AUD.
UK CPI INCREASES FOR THE FIRST TIME SINCE NOVEMBER
The Consumer Price Index (CPI) measures the change in the price of consumer goods and services. The CPI is an indicator for UK inflation.
A higher than expected CPI reading is bullish for the GBP, while a lower than expected reading is considered bearish.
Consumer prices rose by 2.5% in July compared to 2.4% the previous year. This increase was in line with expectations according to a poll by Thomson Reuters. It was the first increase in inflation since November due to higher petrol prices, transport tickets, and computer games. This put a further squeeze on household incomes after several months of falling wage growth.
The Bank of England (BoE) increased interest rates in August and forecast inflation at slightly above 2% in two years’ time. It looks set to keep interest rates steady after the rise as Britain heads for an uncertain Brexit next year. The GBP has fallen in recent weeks on concerns over the lack of an agreement.
BoE Governor Mark Carney warned that if Britain left the EU without a trade deal, this could put an extra squeeze on household incomes for more years.
The CPI is forecast to fall towards the BoE’s 2% target over the next 12 months easing the squeeze on household finances. If the actual CPI figure differs significantly from the forecast, traders can expect a strong market reaction.
However, as Brexit uncertainty continues, markets may remain volatile and provide traders with opportunities for short and long-term investments.
For more information about how data releases affect markets and how traders can use them to make investments, contact FXB . Learning how to interpret data releases is one of the keys to successful trading.