All G10 central banks have meetings in September and next week we will hear from the ECB, the RBA, the Riksbank and the BoC. Not so long ago, having four central bank meetings in one week would have been a treat for the FX vol markets. Nowadays, however, the FX short-term vol remains close to recent lows, likely reflecting the fact that the markets expect no policy surprises. Investors may be also keeping their powder dry for the central banks’ ‘Super Wednesday’ on 21 September, when the Fed and the BoJ hold their policy meetings.
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The G20 summit over the weekend could also reiterate the group’s commitment to improve policy coordination, and support flagging global investment and growth. That could boost market sentiment and brighten up the outlook for USD against safe haven currencies like JPY.
Ahead of the ECB meeting, there is a small chance that the Governing Council will extend the duration of its QE programme beyond March 2017. This could send the EUR/USD lower initially but we doubt that the pair will come under sustained selling pressurewithout a strong signal that the bank’s asset purchases will be expanded as well. The Riksbank should keep its policy unchanged, confirming the market view that its ability to ease further is constrained. This should help SEK consolidate.
The BoC and the RBA should keep policy unchanged as well but they may signal readiness to act if domestic and global conditions were to deteriorate further. In addition, data released could highlight that the Australian recovery stalled in Q2 while conditions in the Canadian labour market remain challenging. The risks for AUD and CAD could thus be tilted to the downside vs USD next week.That said, a potential recovery of market risk sentiment in the wake of G20 could limit any selling pressure on the high-yielding and commodity G10 currencies.
GBP was buoyed by better than expected UK data of late. Further evidence that the initial Brexit shock is abating could help the currency consolidate some more across G10 FX next week. We believe it is too early to call for a turning point in the GBP outlook, however, and expect the currency to trade back closer to recent lows going into year-end.