The force awakens tomorrow as the Federal Reserve concludes its last policy meeting of the year. Global markets are standing still at the moment, eagerly anticipating a decision to raise interest rates in the US – for the first time since June 2006. A quiet-ish session overnight ad profit taking and position squaring comes to define markets in the days leading up to a marquee calendar event – this one being the last of the year.
Despite a strong North American close on Monday, equities in Asia were a sea of red today. Optimistic RBA minutes supported the Australian and New Zealand dollars, which found a bit of support as oil prices recovered after a scary dip below $35 per barrel. While the Reserve Bank of Australia refrained from cutting rates at the last policy meeting, general concern suggests they remain prepared to do so again at some point. There were no new surprises in the minutes though, as slowing Chinese growth and low commodity income remain at the top of the list of concerns.
A more active session in Europe saw some topside stops triggered, as German ZEW and UK inflation happily surprised on the high side. The euro jumped by about 0.5% to clear out short positions above the 200-day moving average, while Sterling also found mild support getting to a new high for the week. The Bank of England released their quarterly bulletin, proclaiming that Britons have done a good jobs of shoring up finance and would be more prepared, today, to withstand any interest rate rises. BOE Chairman Mark Carney and his peers made it clear the committee wants to see faster wage growth and stronger domestic cost pressures before beginning to tighten. Finally, in this week’s policy decision undercard, Sweden’s Riksbank left rates unchanged. Governor Ingves did make it known his committee would be ready to intervene should the Krona continue to rise, which caused a mild stir.
Here in the US, important inflation data kicks things off at 830am. The market is looking for a slight increase on the monthly change (0.2%) and a more robust bounce over the same period in 2014 (2.0%). Unless we see a remarkable difference in what’s expected, these numbers should not move the needle before tomorrow’s important FOMC decision. The US dollar has tightened up a bit to begin the week, with most of the risk shoved off the table last week in the wake of the ECB decision. US equities experienced a nice day on Monday, closing at the highs of the session. The dollar, which had traded on the back foot for most of the session, bounced nicely with equities and finished on the higher end of the very tight short term range.
The Canadian dollar has similarly traded within a tight range to kick off the new week. Oil prices bounced a bit on Monday, which gave the Loonie a brief relief rally, but the Canadian dollar remains entranced in multi-year lows. Outside market events continue to shape price action for Canada, with onlyFriday’s November inflation on the calendar this week. Bank of Canada Chairman Stephen Poloz will address markets tomorrow, making prepared remarks following the semi-annual Financial System Review. Following last week’s comments on negative interest rates and other accommodative policies, Mr. Poloz will most likely take a conservative approach, which shouldn’t impact the market.
Further reading:
Citi Trade Of The Week: Sell AUD/JPY Targeting 84.10
Last critical US figure ahead of the Fed – watch EUR/USD, USD/CAD
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