Unlike the BOC and the RBA, the Reserve Bank of New Zealand is poised to continue its relatively aggressive pace of rate hikes over the near-term time horizon (although still not as aggressive as the Fed).
Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger AUD/USD-bearish contrarian trading bias. We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall. The number of traders net-long is 7.84% lower than yesterday and 1.35% higher from last week, while the number of traders net-short is 27.51% lower than yesterday and 6.14% lower from last week. IG Client Sentiment Index: AUD/USD Rate Forecast (October 13, 2022) (Chart 2)ĪUD/USD: Retail trader data shows 80.49% of traders are net-long with the ratio of traders long to short at 4.13 to 1. Rates markets are priced such that the RBA will bring its main rate to 2.997% by the end of 2022, which is a meaningful reduction from where markets were priced in early-September, when the main rate was expected to rise to 3.259% by the end of the year. Get My Guide RESERVE BANK OF AUSTRALIA INTEREST RATE EXPECTATIONS (October 13, 2022) (TABLE 2)Īccording to Australia overnight index swaps (OIS), there is an 82% chance of a 25-bps rate hike in November and a 59% chance of a 25-bps rate hike in December. More tightening may be ahead, but it may come in more measured increments over the next few months. RBA Assistant Governor for Economics Luci Ellis remarks this week effectively pegged the neutral rate between 2.5% and 3.5% currently, the RBA’s main rate is 2.6%. Recent comments by key Reserve Bank of Australia officials suggests that the central bank still has some ways to go in order to bring its main rate into neutral territory, the level as which monetary policy is neither expansionary nor contractionary. Traders are further net-short than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USD/CAD-bullish contrarian trading bias. We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/CAD prices may continue to rise. The number of traders net-long is 26.61% lower than yesterday and 35.92% lower from last week, while the number of traders net-short is 8.54% lower than yesterday and 8.37% lower from last week. USD/ CAD: Retail trader data shows 27.87% of traders are net-long with the ratio of traders short to long at 2.59 to 1. IG Client Sentiment Index: USD/CAD Rate Forecast (October 13, 2022) (Chart 1) Rates markets are estimating the BOC’s main rate to rise to 4.107% by the end of 2022. Bank of Canada Interest Rate Expectations (October 13, 2022) (Table 1)Īccording to Canada overnight index swaps (OIS), rates markets are discounting a 24% chance of a 75-bps rate hike later this month (a 100% chance of a 25-bps rate hike, a 100% chance of a 50-bps rate hike, a 24% chance of a 75-bps rate hike), and are favoring a final 25-bps rate hike by the end of the year.
Although comments in recent weeks have suggested that the BOC intends on remaining aggressive, rates markets don’t think the path of rate hikes moving forward will be nearly as aggressive as it was over the summer months. The Bank of Canada raised rates by 75-bps in September after a 100-bps rate hike in July, suggesting a climbdown in the their aggressive approach. Relative to the Federal Reserve’s still-aggressive intentions, this change in perception has been a negative development for the Australian, Canadian, and New Zealand Dollars.įor more information on central banks, please visit the DailyFX Central Bank Release Calendar. After raising rates aggressively over the course of 2022 – frontloading rate hikes, if you will – the three commodity currency central banks appear poised to slowdown their pace of monetary policy tightening moving forward. In this edition of Central Bank Watch, we’re examining the rates markets around the Bank of Canada, Reserve Bank of Australia, and Reserve Bank of New Zealand.
Retail trader positioning suggests that AUD/USD rates have a bearish bias, NZD/USD rates have a mixed bias, and USD/CAD rates have a bullish bias.While the Reserve Bank of Australia and Reserve Bank of New Zealand won’t meet again until November, both central banks are forecast to raise rates by 50-bps next month.The Bank of Canada is expected to raise rates by 50-bps when policymakers meet later this month.
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