Central banks are still on the agenda this week

It’s been a fun start to May trading but don’t rest on your laurels just yet. While watchful eyes are on the US inflation data next week, we still have this week to go through first. And on the calendar, there are major central bank meetings to be wary of. The BOE and RBA will feature in that regard, so is there anything that we should look out for?

The BOE policy decision will be on Thursday but it should be a non-event for the most part. The first rate cut is currently priced in for August. So, it’s still all about the data over the next two months. There should be minimal to no change in the policy language by the BOE, so don’t look for much in the statement.

Bailey’s press conference will be more interesting, to check again to see if the central bank is comfortable with the latest market pricing. They’ve said before they are okay with a potential move in August, so we’ll see. As for the year itself, traders are pricing in ~47 bps of rate cuts currently.

As for the RBA, the policy decision will come tomorrow and it will be interesting to see how things change after the latest inflation numbers here. The thing now is that traders have already abandoned rate cuts for the Australian central bank this year. In fact, the rates curve is leaning towards a rate hike instead.

The cash rate futures are showing ~42% odds of a rate hike for August and September. And that’s the risk for the aussie going into tomorrow.

Will the RBA lean more hawkishly and keep the option of a rate hike on the table? Or will they insist that inflation is still on the right path even after the latest readings?

This article was written by Justin Low at www.forexlive.com.