Your weekly fundamental view (Sept 5-9)

September 05, 2016 16:00


Need to know

This week is all about central bank interest rate decisions. A series of rate choices are expected this week from various parts of the world. The central banks of Australia, Canada and the Euro zone will release their new interest rate levels for the upcoming month.

Coming up

Australian interest rate and monetary policy statement, released Tuesday 6 September. The Reserve Bank of Australia (RBA) is not expected to change interest rate levels this month. Earlier this year, the RBA decreased rates by a quarter percent from 2% to 1.5%. To boost the economy, the interest rate has been in a steady decline since 2011, from a high of 4.5% to the current low of 1.5%. Why should traders care? The interest rate levels will majorly impact Forex market valuations. An increased interest rate level relative to other currencies, will boost demand - while a rate cut, will make a currency less attractive. Despite the recent rate cuts, the 1.5% interest rate of the Australian Dollar is still relatively high compared to most major currencies.

Canadian interest rate and monetary policy statement, out Wednesday 7 September. The Bank of Canada (BOC) is not expected to move the interest rate in either direction. The current interest rate of 0.5% has been in effect since July 2015. Before that, rates were pinned at 1% from 2011 to 2015. Why should traders care? Despite the historically low rate, Canada still has higher rates than major currencies like USD, EUR and JPY.

Australian trade balance on Thursday 8 September. The forecast for this month's trade balance is -$2.8B, compared to last month's balance of -$3.19B. This number represents the difference in value between imported and exported goods/services during the month. A positive number indicates more goods/services were exported than imported. Why should traders care? Exports/imports are directly linked to currency's supply and demand. Imports to Australia require Australians to convert Australian Dollars (AUD) to the local currency, while exports from Australia require foreigners to buy AUD.

Euro zone interest rate and monetary policy statement, out Thursday 8 September. The European Central Bank (ECB) is not expected to change interest rate levels in this month's meeting. The interest rate currently sits at 0% and is one of the lowest in the world. The Swiss Franc is the only major currency with a lower rate, at -0.75%. Near 0% rate levels have been in effect since September 2014, when the ECB decided to move the rate to 0.05%. Why should traders care? The ECB is trying to improve economic conditions for some of its struggling Euro zone members, by steadily decreasing interest levels. The low rates have weakened the Euro substantially over past years. Any new rate decline would push the Euro zone for the first time in history, below the 0% mark.

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