BoJ Keeps Policy On Hold

Daily Analysis - 15/09/2015

Monetary Policy Board Opts to Keep QQE Program Unchanged at JPY 80 Trillion

The markets got off to a busy start this morning with the RBA’s meeting minutes being released and the Bank of Japan opting to keep monetary policy unchanged. Focus shifts to the European session which will see the Eurozone ZEW economic sentiment and UK CPI data ahead of the monthly US retail sales.

Eurozone Industrial Production Rises

Industrial production in the Eurozone recorded steady growth of 0.60%, up from the declines of -0.30% in the prior month, bolstered in part by the weakening of the Euro over the past year. The uptick in monthly industrial production which managed to beat estimates of 0.30% comes after two-straight months of declines, but remains below the March highs of 1.10%. EURUSD was little changed on the data although biased to the downside with the currency posting -0.14% losses yesterday. Focus will now shift to the French CPI and the Eurozone and German ZEW economic sentiment figures due out. Median estimates point to a possible decline in the ZEW economic sentiment both for Germany and the Eurozone, so a potential beat on the estimates could keep the Euro well supported against the Greenback in the near-term.

Australia Gets a Change in Leadership

The Australian dollar continued to post strong gains into a second week after AUDUSD appreciated 0.79% yesterday. The gains were led by the news that the Australian Prime Minister, Tony Abbott was replaced by Malcolm Turnbull in a vote of confidence motion. The markets cheered the change of leadership with the Aussie posting strong gains across the board. To date, the Aussie has gained over 3.00% over the past week after previously testing the lows of 0.6907 to trade near 0.7120 at the time of writing. Earlier today, the RBA released its Monetary Policy Meeting Minutes which were seen by the markets as dovish following the RBA reiterating its commitment to keeping interest rates low. AUDUSD trended down -0.21% for the session but remains well supported to the upside. The big test for the Australian dollar will however come from this Thursday's FOMC event.

Bank of Japan Leaves Policy Unchanged

The Bank of Japan held its monthly monetary policy meeting today and as widely expected, the Central Bank left monetary policy unchanged with the current pace of asset purchases at JPY 80 trillion. The central bank echoed the same tune from the previous meeting that the Japanese economy was seen to be recovering modestly and that the bank's Quantitative and Qualititative Easing program was having the desired impact. The Bank's decision, although widely expected, was a close call as various BoJ members were keen to see the Central Bank expand its balance sheet further in-line with expectations from traders. The market view however was for the BoJ to keep its policy unchanged at this meeting and instead consider adjustments in the October meeting. The Yen was seen trading firm with USDJPY trading near 120.07 after previously testing session highs of 120.65.

UK CPI and US Retail Sales

The European trading session will see the UK’s consumer price inflaiton data released. The median estimates are for headline CPI to stay flat while the Core CPI is expected to soften, printing at 1.00% versus 1.20% prior. A weak CPI reading could no doubt keep pressure on the BoE to take an unchanged stance on interest rates at future policy meetings. The British Pound which surged last week has opened this week on a weaker note. Later in the session, the US monthly retail sales data will be released which is expected to print a softer number in August. While retail sales is not expected to dramatically impact the Federal Reserve’s decision-making, a weak retail sales could possibly keep the markets on edge with the consensus of a no rate hike in September gaining ground.