This is huge from eFX - views on trading the Bank of Japan and the Reserve Bank of Australia announcements from banks
RBA Meeting:
BNPP: RBA On Hold; Global Equities Real Driver For AUD.
We expect the RBA to leave policy unchanged this week, in line with market pricing which currently assigns just 6% chance of a rate cut this week and only 11% by year-end. Commodity exporter currencies remain highly sensitive to the risk environment and, while we expect the USD to correct lower vs. the low-yielder currencies this week, the USD may hold up better vs. the AUD and CAD if the risk environment wobbles. Global equities continue to drive these currencies especially AUD & NZD.
NAB: Risk Of RBA Steps Its Dovish Rhetoric But AUD Unlikely To Break Below Range.
Although the RBA is widely expected to remain on hold this afternoon with the market pricing a 5% probability of a rate cut and most economists including NAB's tipping a no change, the post meeting statement will be closely scrutinised for any signs of an easing bias, particularly given the low core inflation print in Q3 and the disappointing September labour force report which showed a trend slowdown in the rate of employment growth. So the risk is the RBA steps up its dovish rhetoric, the market is pricing just 12bps of rate cuts over the coming year and a month ago pricing was at 22bps, suggesting there is scope for repricing. Similarly the AUD could come under some pressure, however a break below the 0.745-0.775 range held since July this year looks unlikely to be tested.
Credit Agricole: RBA's 'Soft Speak' On AUD To Continue; Inflation Rhetoric Key.
The RBA Board meeting outcome as well as its statement on monetary policy (SoMP) will be important for the AUD. With Australia's underlying inflation in line with the RBA's August SoMP, we expect the RBA to be on hold this week. Its rhetoric around the inflation outlook will be important for markets. For several months the RBA has said that it expects inflation to remain low for "sometime". We think that there is some risk that this outlook could be upgraded on the back of higher commodity prices and inflation appearing to stabilise in Q3. The Australian TWI remains at the edge of the RBA's tolerance zone, so we expect the RBA's soft speak on the currency to continue. Low liquidity around the running of the Melbourne Cup horse race soon after the RBA meeting outcome could exaggerate some of the moves in the AUD. The potentially more important RBA communique this week is the RBA's November SoMP. While normally dull in terms of its FX market impact, we think that an upgraded RBA inflation outlook could signal a move closer to the end of its easing cycle. With the market still pricing in a 30% probability of a rate cut in 2017, such a signal would be good news for the AUD. Building approvals, trade and retail sales data will also be adding to AUD volatility. Despite cooling house prices inflation, building approvals have remained near record highs. Retail sales data bounced post the RBA's August rate cut and it will be interesting to see if this momentum can be maintained. Trade data should get a boost from stronger commodity prices. With the Australian 2Y swap rate running a bit ahead of data surprises, financial markets will likely be a bit more sensitive to any downside surprises in Australian economic data
BofA Merrill: RBA On Extended Hold; To Maintain An Easing Bias.
We expected the RBA to be on hold for an extended period following the August rate cut. It now looks likely this will be more extended than previously thought as two rate cuts in 2016 have served to support activity in the housing sector. We highlighted upside risks to the outlook for housing sector activity in our recent study. However, the Australian experience at present is particularly varied across the states. Increased supply of units will continue to put downward pressure on rents that make up 7% of the CPI. We still expect the RBA will maintain an easing bias as activity and inflation risks are still skewed to the downside. With the economy still undergoing its transition towards non-mining activity the RBA still has a preference towards a lower currency despite higher commodity prices. So the Bank is again confronted by a communication challenge and the risk that prices for tradeable goods and services might remain mute
CIBC: RBA to Let Fed Do the Heavy Lifting
After ten years under the helm of Governor Stevens, the RBA's transition to Governor Lowe has been relatively seamless. That's been an important factor behind the stability in AUD recently. However, inflation remains cool and employment has disappointed recently. That has pushed up the marketimplied probability of a Q1 2017 rate cut to 35%. Nevertheless, the RBA would likely rather see the Fed do the heavy lifting for them by raising US interest rates, pushing the Australian currency weaker in the process. The RBA is likely to get its wish and see the aussie tumble into year-end around the time the Fed hikes rates. CIBC targets AUD/USD at 0.73 by year-end.
Barclays: RBA Comfortably On Hold; NZD More Vulnerable Thank AUD To USD Strength
Although higher headline inflation is driven by temporary factors (adverse weather conditions pushed up fresh food prices) and underlying inflation remains low, Australia's economic outlook appears resilient to external shocks, and unless there is significant AUD appreciation, we think the RBA sees no urgency to ease further. The Statement of Monetary Policy on Friday will likely reflect this bias. The September retail sales report (Friday) is likely to show a modest pullback after a strong increase in August, but we believe data will suggest healthy spending trends on a y/y basis. We continue to expect the RBA to stay on hold through 2016. With the RBNZ clearly being more dovish and having a stronger bias for a weaker exchange rate, we continue to see the NZD being more vulnerable than the AUD to USD strength.
RBC: No Change From The RBA; An Implicit, Albeit Mild, Easing Bias.
We expect no change from the RBA tonight. Inflation remains sub-target and is set to stay there for some time, but the activity data are more mixed (housing-related data are firm and key bulk commodity prices continue to rise). An implicit, albeit mild, easing bias will remain evident in the key macro forecasts in the SoMP, with core inflation set to remain sub 2% this year and the 1½-2½% forecast range unchanged through to the end of 2018. Near-term GDP seems likely to be revised lower. Nevertheless, we expect the tone of the statement and the SoMP to be reasonably balanced/positive, highlighting near trend growth and consistent with an RBA on the sidelines. On Friday, we look for a modest increase in September retail sales (0.3%m/m).
BoJ Meeting:
BofA Merrill: A Prolonged Pause; Buy USD/JPY Dips Into 2017.
At its 1 November meeting, we expect the BoJ to keep all policy settings on hold. The policy board looks poised to downgrade its inflation forecasts and delay the timing of 2% inflation further. But this has been widely telegraphed by the central bank over the past week and should not be cause for surprise. While we expect little new from this meeting, it provides a good opportunity to step back and look at the economic and policy outlook. We continue to expect the BOJ to keep its foot planted on the accelerator, but not offer new easing measures unless there is a deflationary shock. In our view, the ball is now in Prime Minister Abe's court to deliver sustained fiscal easing to ensure that the BoJ's efforts gain traction. Next month's US presidential election likely will be the key driver of USDJPY over the short term as the election outcome will have quite binary implications on JPY. If the Republicans win the presidential race, JPY is likely to rally significantly short term amid risk-off trading. If the Democrats win, the market reaction is likely to be limited as it has been largely priced in. Gridlock in the congress would have negative implications on USD while a clean sweep - one party winning the presidential seat and congress - by either party would support the currency. That said, depreciation into 2017 is strong so that we would be buyers of USD/JPY's dip rather than sellers of USD/JPY's strength.
Credit Agricole: BoJ A Relatively Tame Affairs.
The 10Y JGB yield has averaged about -6bp since the BoJ introduced its Yield Curve Control (YCC) and its target of 0.0%. Rhetoric from BoJ officials suggests that it will not adjust policy settings in the near term, so this week's meeting should be a relatively tame affair. Our economist expects that the BoJ's inflation forecast outlook will be lowered, but its real GDP growth forecast outlook will be left broadly unchanged. The rhetoric around when the BoJ expects to achieve its inflation target will be watched by the market. Our economist indicates that the BoJ continues to anticipate that it will reach its 2% inflation target during fiscal 2017 but, like the market, it looks for an eventual delay. A delay at this meeting would be a modest surprise and be interpreted by the market as reducing the chances of further stimulus by the BoJ, which would be mildly JPY positive. We think that the more important event for the JPY will be the publication of the BoJ's schedule for Rinban operations in November, just after the outcome of the BoJ meeting. This release is where the BoJ will show its tolerance for deviation in the 10Y JGB yield from its 0.0% target. Signs of significant tapering of JGB purchases by the BoJ would push JGB yields higher and weigh on the USD/JPY.
BNPP: BoJ A Neutral Factor; We Target USD/JPY At 108 By Year-End.
We expect the Bank of Japan to leave policy unchanged at this week's meeting after switching to a yield curve targeting regime at its previous meeting. Our economists note the Bank may abandon numerical guidance on its pace of JGB purchases, but only because the guidance has become superfluous given the new yield curve targets. With the BOJ's new framework now understood by markets, we would not expect a significant reaction to this. The Bank's quarterly outlook may also push back the timing for achieving 2% inflation by a year, again with limited market impact. We view BOJ policy as likely to be a neutral factor for markets heading into 2017, with Fed policy the main driver of USDJPY in our bullish forecasts. We target 108 by yearend.
Morgan Stanley: Any USD/JPY Setback Into 103 A Buying Opportunity.
Central banks will be in focus this week, with the BoJ meeting today and tomorrow the starting point. While Governor Kuroda and company are not expected to reveal any changes to the JPY80trn/year QE programme, market participants will watch if there will be any projection change of the BoJ's 2%Y inflation target into 2018, which may delay further monetary easing steps. Hence, JPY may rebound in the short term, but any setback in USD/JPY into the 103 handle is viewed as providing a JPY selling opportunity.
Barclays: We Expect No Easing At This Week's BoJ MPM.
The Bank of Japan MPM will be the main focus this week and we revised our baseline forecast to no easing from a 20bp rate cut. On 21 October, Governor Kuroda expressed that the BoJ could extend its "during FY17" ETA for achieving the 2% price stability target while also indicating a cautious stance on further easing. Indeed, 95% of market participants expect no BoJ action this week, according to a Bloomberg survey conducted on 21-25 October. However, markets will also be watching the BoJ's announcement of the rinban operation schedule for November (Tuesday), given the surprise reduction last month. We expect the size of the purchases in all sectors to remain unchanged, given that the JGB curve in the long/superlong sectors has hardly changed since the QQEYCC introduction
SocGen: Staying Long USD/JPY Into BoJ.
We still prefer dollar, longs against the yen to longs vs. the Euro. There are still lots of yen longs out there to squeeze as US rate expectations rise and B OJ policy is well-designed to help yield differentials widen in the favour of the dollar as long as the upward crawl in treasury yields goes on. The only concern is risk sentiment more broadly - I couldn't make a credible case for Yen softness on a trump win..
TD: BoJ On Hold; US Elections Real Driver For USD/JPY.
We expect the BoJ to remain on hold this week. We think the release of the Rinban operations and market sentiment around the US election will likely have more influence over USDJPY this week. The former will indicate the BoJ's threshold of variance around the new yield target.
