The Iran peace framework has effectively superseded this week’s central bank calendar as the dominant market driver, with oil price direction doing more work on currencies like the Australian dollar than any RBA statement could. The BOJ hike is fully priced and unlikely to move the yen materially unless accompanied by coordinated FX intervention. The Fed, with rates at 3.75%, faces no pressing case to tighten further, and the RBA is in a similar position of comfortable restraint. Analysts see long AUD against European currencies as the cleaner trade on confirmed peace, independent of whatever the RBA signals. The yen’s trajectory depends less on the BOJ’s incremental tightening and more on a revival of genuine optimism around Japan’s real economy outlook.
The BOJ is set to hike 25bp to 1% Tuesday while the RBA, Fed and BOE are all expected to hold, with analysts saying the Iran peace deal is doing more to drive currencies than any central bank this week.
Earlier:
BOJ, expected 0230 – 0330 GMT:
- Former BOJ economist Kameda says hike to 1%
- Daiwa sees BOJ June hike
- BOJ to raise short-term policy rate to 1%
RBA:
Summary:
- The BOJ is expected to raise its policy rate by 25bp to 1% at the conclusion of its two-day meeting Tuesday, with the decision and Deputy Governor Uchida’s briefing expected between 0230-0330 GMT (2230-2330 ET Monday night); a surprise hold would shake markets, a hike will not
- The RBA meets decision due is at 0430 GMT (0030 ET); rates are at 4.35% and a hold is widely expected, with analysts saying the oil price will drive the Australian dollar more than anything the RBA says
- The Federal Reserve is meeting this week; with rates at 3.75%, analysts say there is no urgent case for the Fed to hike even with energy-driven inflation elevated
- The BOE is expected to hold at 3.75% at its meeting Thursday June 18, decision due 1100 GMT (7am ET), with a tightening bias likely retained; domestic political noise around a by-election and potential Labour leadership questions will compete for sterling’s attention
- Analysts say only a BOJ hike accompanied by coordinated FX intervention has a realistic chance of triggering a sustained yen rally; the currency needs real economy momentum, not incremental rate support
- Long AUD against European currencies is flagged as an attractive trade on confirmation of the Iran peace deal, regardless of the RBA outcome
A rare week in which six major central banks are delivering decisions has been comprehensively overshadowed by the Iran peace framework, with analysts saying geopolitics is doing more to move currencies and rates markets than any policy announcement is likely to achieve.
The Bank of Japan stands apart as the one institution expected to act. A 25 basis point increase to 1% at the conclusion of its two-day meeting on Tuesday would take Japanese borrowing costs to their highest level since 1995. Deputy Governor Shinichi Uchida’s subsequent briefing expected 0630 GMT. Markets are fully priced for the move, meaning the yen reaction will depend almost entirely on the tone of forward guidance. Analysts are sceptical that even a hawkish hike will be enough to sustainably lift the currency. The yen’s problem, in their view, is not the pace of BOJ tightening but the absence of convincing momentum in Japan’s real economy, and no rate decision this week resolves that.
The Reserve Bank of Australia meets on Tuesday with its decision expected around 0430 GMT. With the cash rate already at 4.35%, analysts see no urgency to move in either direction while the Gulf situation remains in flux. The more important variable for the Australian dollar is the oil price. A durable reopening of the Strait of Hormuz would benefit Australia’s terms of trade and current account position, making long AUD against European currencies the preferred expression of a confirmed peace trade, independent of whatever the RBA communicates.
The Federal Reserve is not likely to move this week. At 3.75%, analysts say the funds rate is sufficiently restrictive that there is no immediate pressure to tighten further, even with energy costs having pushed inflation higher. The Bank of England, also holding at 3.75%, is expected to retain a tightening bias at its Thursday decision, due at 1100 GMT, but sterling’s near-term direction is as likely to be shaped by domestic political developments as by anything the Monetary Policy Committee signals.
This article was written by Eamonn Sheridan at investinglive.com.
