Week Ahead – Dollar braces for Fed and NFP but will BoE steal the limelight?
XM Group | Oct 29, 2021 10:04AM ET
RBA: a dovish bluff?
The Reserve Bank of Australia has been pretty vocal in signalling the markets that it has absolutely no intention of raising interest rates before 2024. However, with lockdowns in Australia gradually being lifted as vaccination rates catch up with Europe and America, the economy looks set to make a big comeback in the next few months. In the meantime, inflation is on the rise, specifically, underlying price gauges have started to creep higher.
Although it may take some time before wages also start to head north in a sustainable fashion – a key criteria for the RBA – investors think this is only a matter of time and are predicting that rates will need to go up much sooner. Interest rate futures currently imply four rate hikes next year. Policymakers will probably try to push back against such expectations, but not entirely.
The RBA has allowed the three-year yield on Australian Government Bonds (AGB) to surge past its target of 0.10% in recent days, raising speculation that it may soon abandon its yield curve control policy.
The OPEC+ alliance has so far resisted calls to pump more oil, with some members even struggling to meet existing targets. However, OPEC has a tendency to shock so a bigger-than-expected boost in output is a possibility, especially if Saudi Arabia has a change of heart. Another option for OPEC is to increase production by 800,000 bpd in November to ease the immediate fuel shortages but keep them unchanged in December.
Any surprise decision to raise output more than the predicted amount could spark a steeper correction in oil prices than the mild retreat seen in the last few days.
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