Currency Market to Encounter Flurry of Rate Decisions from RBA, BOE, and ECB

With the Reserve Bank of Australia, Bank of England, and European Central Bank all scheduled to announce rate decisions next week, the FX markets will have no shortage of market-moving indicators on hand.

Clearly, this leaves the Australian dollar, British pound, and euro as the top three currencies at risk, but traders should also watch for the impact of US ISM non-manufacturing on the US dollar and the Canadian net employment change on the Canadian dollar.

• US ISM Non-Manufacturing Index (SEP) – October 5, 10:00 ET
On Monday, the ISM non-manufacturing index is projected to rise for the sixth straight month in September to 50 from 48.4, which would be the highest reading since September 2008. With 50 being the point of neutrality, anything even slightly better than expected (50.1 or higher) would signal an expansion in business activity for the first time since August 2008. That said, a sharp improvement seems unlikely in light of the fact that the Conference Board’s measure of consumer confidence slipped to 53.1 in September from 54.5, while the latest US NFP report showed that the services sector lost 147,000 jobs during the same period. Overall, it would likely take an index reading above 50 to elicit a strong reaction from the US dollar, though a surprise decline would provide equally choppy price action for the currency.

• Reserve Bank of Australia Rate Decision – October 6, 23:30 ET
The Reserve Bank of Australia (RBA) is anticipated to leave their cash rate target unchanged on Tuesday for the sixth straight month at 3.00 percent, and the Australian dollar may only respond to a change in the bias of RBA Governor Glenn Stevens’ monetary policy statement. As it stands, Credit Suisse Overnight Index Swaps (OIS) are pricing in a 22 percent chance of a 25 basis point rate hike during this upcoming meeting, and 175 basis points worth of hikes over the next 12 months, which is generally in line with what we’ve seen since early August. It was actually in early July when the RBA’s bias shifted from dovish to neutral, as Stevens removed a line from his statement noting that “scope remains for some further easing of monetary policy.” As long as we see these RBA statements continue to provide progressively optimistic outlooks, the markets are likely to remain in favor of large rate increases over the next year. However, if the RBA starts to signal a more cautious tone, this sentiment could shift very quickly and lead the Australian dollar lower.

• Bank of England Rate Decision – October 8, 07:00 ET
The Bank of England (BOE) is anticipated to leave rates unchanged at 0.50 percent on Thursday at 7:00 ET, but this won’t even be the market-moving part of the announcement. Instead, traders will be looking toward the BOE’s policy statement. This has consistently been the prime “news event” of recent rate decisions. Last month, the BOE indicated a neutral stance as they stated they would continue their £175 billion quantitative easing program, and this ultimately led the British pound to rally against the US dollar and euro immediately. A repeat of this statement is likely to trigger a similar reaction from the British pound, but on the other hand, any indication that the program may need to be expanded down the line would weigh very heavily on the currency. That said, such a scenario is highly unlikely.

• European Central Bank Rate Decision – October 8, 07:45 ET
The European Central Bank is anticipated to leave rates unchanged at 1.00 percent at 7:45 ET. Where the currency ends the day, though, may have more to do with what ECB President Jean-Claude Trichet says during his post-meeting press conference at 08:30 ET. Traders will likely focus on any comments regarding the future of interest rates in the region, including whether 1 percent should be considered the “floor,” as well as statements on exit strategies for the central bank’s liquidity programs.

• Canadian Net Employment Change (SEP) – October 9, 07:00 ET
At 7:00 ET, the Canadian net employment change may show a decline of 7,500 during September following a surprise jump of 27,100 in August. Furthermore, the unemployment rate is anticipated to have risen to match the January 1998 high of 8.8 percent from 8.7 percent. Since the employment change tends to be a very volatile release, this should have the greater impact on the Canadian dollar, with a sharper than expected drop likely to weigh on the currency and an unexpected positive result likely to push it higher.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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