Initial preview of FOMC meeting next Wednesday. The highlight of the week next week is the FOMC meeting on Wednesday, which will see the latest set of Fed projections on inflation, employment, GDP and rate forecasts in the dot plot. To recall, the June FOMC meeting saw a sharp shift higher in Fed expectations on the fed forecast dot plot shift and the general sense that the Fed is moving in the direction of tightening. Since the June FOMC meeting, expectations have triangulated to the very middle of the range established back before and after the June meeting, suggesting that the market is not leaning in either direction at all and thus perhaps that the bar to a hawkish surprise is quite low, with that stance in part encouraged by Fed Chair Powell’s dovish Jackson Hole speech in late August. I suspect we are set for a decent hawkish surprise as the Fed would like to get this taper rolling to have a more nimble stance next year if employment surges into the end of the year.
A long list of additional central banks next week. Besides the Fed next week, we have the BoJ also up next Wednesday, with little expected there as interest in Japan will likely only pick up on new fiscal initiatives on the other side of the election set to take place on or before November 28. More important in terms of the potential to affect price action are the Riksbank meeting on Tuesday (guidance after the hot August Sweden inflation data) and the Norges Bank meeting on Thursday – with a 25-bp rate hike expected, with further guidance the key after this hike has been flagged. The Bank of England is also up on Thursday, with a heavy lean from the market on anticipation of further guidance in the direction of removing accommodation sooner rather than later. (BoE expectations out in 2022 at the highs for the cycle here). EM watchers should note the Hungarian Central Bank meeting on Tuesday, China’s PBOC Wednesday, Brazil late Wednesday, Turkey on Thursday and South Africa on Friday.
CAD not fretting the election on Monday. Canadian prime minister Justin Trudeau’s gambit to take advantage of apparent popularity in the polls and reap a ruling majority in a snap election has backfired badly, with oddsmakers about 50-50 on whether Trudeau’s liberals or the now more centrist Conservatives will win the election, with a minority government likely in either case and the Conservatives turn toward the center on climate likely meaning less contrast, particularly with a minority government, than outcomes in past elections.
Table: FX Board of G10 and CNH trend evolution and strength
The loss of momentum in NZD this week despite supportive GDP data prompting new highs in the yield outlook suggest that kiwi outperformance is in danger of failing from here. Watching NZDUSD closely next week as the attempt above the 200-day moving average over the last two weeks has failed. Interesting to note the CHF weakness as noted above, and wondering how long JPY can remain out of synch with that development.