Forex Today: BoJ ends negative interest rates, RBA stands pat on policy


Here is what you need to know on Tuesday, March 19:

The volatility surrounding the Japanese Yen and the Australian Dollar heightened during the Asian trading hours on Tuesday as investors assessed the monetary policy announcements from the Bank of Japan (BoJ) and the Reserve Bank of Australia (RBA). Later in the day, ZEW Survey from Germany and Consumer Price Index (CPI) data from Canada will be watched closely by market participants. The US economic docket will feature Building Permits and Housing Starts figures for February.

The BoJ announced that it lift the interest rate by 10 basis points (bps) from -0.1% to 0% and abandoned its yield curve control (YCC) strategy. Both of these decisions came in line with the market expectation. In its policy statement, the BoJ further noted that it will apply a 0.1% interest to all excess reserves parked with the JPY and said that it will use the short-term interest rates as its primary policy tool. USD/JPY rose sharply with the immediate reaction and was last seen rising nearly 1% on the day above 150.00.

Japanese Yen adds to post-BoJ losses, eyes YTD low.

In the post-meeting press conference, BoJ Governor Kazuo Ueda said that they will continue buying broadly the same amount of Japanese government bonds as before and added that they will consider options for easing broadly, including the ones used in the past if needed.

Ueda Speech: BoJ Governor speaks on interest rate outlook after historic hike.

Japanese Yen price today

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies today. Japanese Yen was the weakest against the US Dollar.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
0.06%
0.14%
0.23%
0.61%
0.81%
0.54%
0.20%

EUR
-0.07%
 
0.09%
0.15%
0.55%
0.76%
0.49%
0.15%

GBP
-0.17%
-0.11%
 
0.06%
0.46%
0.64%
0.36%
0.04%

CAD
-0.23%
-0.17%
-0.08%
 
0.38%
0.59%
0.31%
-0.02%

AUD
-0.62%
-0.55%
-0.48%
-0.39%
 
0.22%
-0.07%
-0.41%

JPY
-0.84%
-0.75%
-0.70%
-0.62%
-0.20%
 
-0.27%
-0.61%

NZD
-0.57%
-0.51%
-0.44%
-0.34%
0.04%
0.26%
 
-0.37%

CHF
-0.23%
-0.16%
-0.09%
0.01%
0.39%
0.59%
0.31%
 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).

 

The RBA left the policy rate unchanged at 4.35% after the March policy meeting, as widely anticipated. In the policy statement, the RBA noted that higher interest rates are working to establish a more sustainable balance between aggregate demand and supply in the economy. “While there are encouraging signs that inflation is moderating, the economic outlook remains uncertain,” the RBA added. 

Bullock Speech: RBA Governor sheds light on interest rate path after standing pat.

RBA Governor Michele Bullock said that they need to be much more confident on inflation coming down to consider a rate cut. AUD/USD came under bearish pressure following the RBA event was last trading slightly above 0.6500, losing more than 0.5% on the day.

Australian Dollar depreciates amid a higher ASX 200, RBA’s Bullock remains cautious.

After closing in positive territory for the fourth consecutive day on Monday, the US Dollar Index continues to stretch higher toward 104.00 in the early European session on Tuesday. Meanwhile, the benchmark 10-year US Treasury bond yield holds steady above 4.3% and US stock index futures trade marginally lower.

EUR/USD registered small losses on Monday and edged slightly lower early Tuesday. The pair holds above 1.0850 ahead of economic sentiment data.

GBP/USD stays on the back foot and closes in on 1.2800 in the early European session on Tuesday. The UK’s Office for National Statistics will release Consumer Price Index data on Wednesday.

Gold failed to gather directional momentum and closed the first day of the week virtually unchanged. The resilience of US Treasury bond yields make it difficult for XAU/USD to gain traction, which was last seen fluctuating in a narrow channel below $2,160.

Gold price seems vulnerable near one-week low amid hawkish Fed expectations.

 

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

 



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