RBA and BoC on the Radar

The Reserve Bank of Australia (RBA) will take the stage on Tuesday at 3:30 am GMT this week; the central bank is widely expected to hold the line at 4.35%. In fact, according to the ASX 30-Day Interbank Cash Rate Futures, there is a 98% probability of a no-change priced in this week over a 2.0% chance of a 25bp hike.

You may recall that the RBA increased the Cash Rate by 25bps at the November meeting, as widely expected, though tweaked forward guidance.

In her post-meeting statement, RBA Governor Michelle Bullock noted:

‘CPI inflation is now expected to be around 3½ per cent by the end of 2024 and at the top of the target range of 2 to 3 per cent by the end of 2025. The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe’.

‘Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome’.

The Bank of Canada (BoC) will also steal the ‘central bank spotlight’ this week on Wednesday at 3:00 pm GMT and is also anticipated to keep the Overnight Rate on hold at 5.0%. As you will recall, October’s accompanying policy statement communicated that inflationary risks have escalated and that the central bank is prepared to increase the Overnight Rate if needed.

Nevertheless, with inflation slowing to 3.1% in the twelve months to October, unemployment rising to 5.8%, and the number of hours worked slowing, as well as Q3 GDP shrinking to 1.1%, this demonstrates sufficient economic weakness supporting a hold this week. It is worth noting that markets are pricing in around 100bps of cuts next year, with the first 25bp cut expected to commence in Q2.

US Employment Situation Report

It would be remiss not to direct some of the week’s limelight to Friday’s non-farm payrolls release at 1:30 pm GMT, with an increase of 175,000 new payrolls expected to be added to the US economy in November, up from the softer 150,000 print in October. Albeit an increase in job growth, a 175k reading is unlikely to rattle the financial markets and is equally unlikely to alter the future path of rates.

According to the recent rise in continued unemployment claims and the Fed Beige Book, hiring is expected to be weak. However, it is important to acknowledge that before Friday’s headline release, the October JOLTs data will be out on Tuesday at 3:00 pm GMT—expectations heading into the event show that job openings could slow to around 9.4 million, down from 9.55 million recorded in September—as well as Wednesday’s ADP non-farm employment change for November at 1:15 pm GMT (the median estimate suggests that jobs growth will slow to sub-100,000).

The unemployment rate is expected to remain at 3.9%, while wage growth is projected to remain unchanged from October to November at 0.2% and slow to 4.0% from 4.1% year-on-year. Should wages come in lower than expected, this may weigh on the dollar at the end of the week as slower wage growth could prompt the Fed to cut sooner than expected. Markets are pricing in more than 100bps of cuts in 2024, with the first 25bp cut fully priced in for May.

G10 FX (5-Day Change):

Charts: TradingView

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