RBA Delay Tapering, BOC and ECB Up Next

RBA taper their taper plans

The RBA held interest rates at a record low for the 9^th consecutive month, in a move that surprised nobody. With practically zero expectations for RBA to raise rates until 2023 it would have been surprise of the century if they had.

However, they did decide to walk back their earlier decision to begin tapering their asset purchasing programme. The rise in new cases of the Delta variant and extended lockdowns in NSW and VIC were to blame. In their statement they said “GDP is expected to decline materially” in Q3 whilst unemployment will likely move higher over the “coming months. In response they then decided to extend their AU $4 billion per week in bond purchases until February. AUD/USD was the weakest currency yesterday and closed back below 74c, suggesting a countertrend move has now begun.

Bank of Canada meeting tonight

Later tonight the Bank of Canada (BOC) hold their monetary policy meeting and is scheduled for 12:00 AEST (15:00 BST). No interest rate change is expected today, although the consensus remains for them to raise rates to 0.5% by the end of the year. However, they could follow the RBA and delay tapering their bond purchases this month due to Q2 unexpected GDP contraction. If they do delay, it may provide bears another reason to short CAD against other currencies after the announcement.

Still, things are looking up for Canada as we head into Q4. Whilst COVID cases continue to rise, around 68% of the population has been fully vaccinated and 74% have received at least one dose. Just this week travel restrictions have been eased, allowing fully vaccinated foreign nationals to return to the country for non-essential trips such as tourism. And that is another step towards a stronger economy, which makes it harder for BOC to justify their asset purchasing programme – even if Q2 GDP was a miss.  

Then over to the ECB tomorrow

Arguably the biggest central bank meeting this week is the ECB (European Central Bank) on Thursday. And once again the theme is around tapering. After previously raising their PEPP (Pandemic Emergency Purchase Program), some are calling for it to be tapered back to pre-pandemic levels given headline CPI is above 3%. Furthermore, ECB staff forecasts may also see CPI upwardly revised for this year and current inflation levels strongly suggest their prior forecasts are too low. So, even if ECB don’t taper today, raising CPI forecasts could be taken as a sign that the ECB may taper bond purchases sooner than the Fed. And that could be supportive of the euro.

How to buy the dip (like a boss)

Cryptocurrencies made headlines again overnight on the announcement that El Salvador became the first country to accept Bitcoin (BTCUSD) as legal tender. Cryptocurrencies fell sharply with Bitcoin falling nearly 20% in around 12 hours. Whilst this could have been a bullish headline, traders instead decided to book profits as the President of El Salvador, Nayib Bukele, announced this decision back in June – so it was a classic case of ‘buying the rumour’ and selling the fact.

And perhaps more intriguingly, President Nayib Bukele tweeted from his authorised twitter account that he was “buying the dip” 8 hours ago with +150 new Bitcoins, then saying the country has saved millions in printed paper and now hold “550 bitcoin”. If true, and buying the dip is a sport, then President Bukele did it like a boss.