The greenback opens the week broadly lower as markets await FOMC meeting. The stronger than expected August CPI reading in US would possibly heat up the debate between hawks and doves. But after all, Fed is generally expected to keep powder dry this week. The main focuses will be on whether the statement would hint on a hike later in the year. Also, Also, Fed will release new set of economic projections that could paint a more optimistic picture. Technically, dollar index is held below near term resistance at 96.25. EUR/USD is also held above 1.1122 support. More evidence is needed to confirm underlying momentum in Dollar.
It is widely anticipated that BOJ would announce additional stimulus measures in the September 21 meeting, after hinting a "comprehensive policy review" at the previous meeting, to achieve its 2% inflation target. We expect the central bank to trim the policy rate deeper to the negative territory, change the target for annual monetary base expansion to a range rather than at 80 trillion yen, and tilt towards more shorter-dated bonds in its JGB purchases. But it should be noted that financial industry in Japan sang a chorus opposing deepening negative interest rates. Opinions are divided on what BoJ would do in the end and the result could surprise the markets.
Aussie is mildly firmer today on strength in Asian stocks. RBA governor and federal treasurer issue a formal Statement on the Conduct of Monetary Policy. The statement noted that "both the Reserve Bank and the government agree that a flexible medium-term inflation target is the appropriate framework for achieving medium-term price stability." And, "they agree that an appropriate goal is to keep consumer price inflation between 2 and 3 per cent, on average, over time." RBA meeting minutes will be watched in the coming Asian session.
Meanwhile, here are some highlights for the week ahead:
- Tuesday: RBA minutes, Australia house price index; Tuesday, Swiss trade balance; German PPI; US housing starts and building permits
- Wednesday: Japan trade balance, BOJ; UK public sector net borrowing; Canada wholesale sales; FOMC rate decision
- Thursday: RBNZ rate decision; US jobless claims, existing home sales, leading indicator; Eurozone consumer confidence
- Friday: Japan PMI manufacturing; Eurozone PMIs; Canada retail sales, CPI