Monetary policy seems to be the center of attention this week in many countries throughout the world.
Minutes of November 3rd’s monetary policy meeting of the Reserve Bank Board were published Tuesday and confirmed once again the uncertainty of Australia’s economic condition.
The RBA report discussed the state of the global economy and pointed to recoveries in the U.S. and the Eurozone while showing how the slowdown in Asia has hampered growth with most of Australia’s trading partners. The economies in China and much of Asia continue to be unreliable in forecasting global growth despite inflation holding steady in both the advanced and emerging economies at rates below the targets of their central banks.
To boost consumer spending, Australia’s central bank is interested in keeping interest rates at record lows. Australian policy makers have kept rates at 2 percent for the past six months as the currency fell and the nation’s jobs market showed solid gains. Australia’s main industries—education, manufacturing and tourism—have been helped by a 32 percent fall in the Australian currency since the beginning of 2013. The Aussie stayed steady after the release of the RBS minutes, trading at 70.92 U.S. cents at 12:17 p.m. in Sydney. In its quarterly statement on monetary policy released Nov. 6, the RBA forecast growth would accelerate to 3 percent in 2016 from 2.25 percent this year.
EUR/USD Parity Close
Meanwhile, many economic strategists, including Goldman Sachs and Société Générale are certain that monetary policy in the Eurozone is moving toward the euro reaching parity with the U.S. dollar within a short time. It began with the free fall of the euro at the beginning of the year and was interrupted by the delays in interest rate hikes. Now it is back on the front page and today’s rate stood at 1.0653.
Goldman Sachs and Société Générale are certain that monetary policy in the Eurozone is moving toward the euro reaching parity with the U.S. dollar within a short time.
Jens Nordvig, Managing Director of currency research at Nomura Securities, suggests that the ECB will not be particularly aggressive in introducing any new policy changes but that slow and continuous easing could put downward pressure on the currency going forward. At the same time, the slow tightening cycle by the Federal Reserve which could see the U.S. central bank introduce its second hike around the middle of 2016 is also helping to decrease pressure on the currency pair. Swiss investment bank Credit Suisse is certain of a weaker euro and sees EUR/USD at parity in their 12 month forecast.
China’s Monetary Policy
It’s hard to leave out China’s monetary policy which has no effective focus and which faces continued financial instability. The Chinese economic future was discussed at length last week by Global investments advisor and Chairman of AIA Group Shawn Baldwin who spoke at the Profit and Loss Conference in Shanghai. Baldwin weighed in several factors that could potentially impact Chinese currency and monetary policy in the near future and told his audience that "China is at the center of all macro global finance discussions and that the impact of China's policy on its currency affects the emerging markets as well as developed western markets. The foreign exchange rate is of great importance to the entire world.”
Japan’s 3rd Quarter
Meanwhile, Japan's economy slipped in the 3rd quarter to an annualized 0.8 percent as concern over the overseas outlook dampened business investment and put policymakers under growing pressure to deploy new stimulus measures to support a fragile recovery. On a quarter-on-quarter basis, the economy shrank 0.2 percent during this time.
Bank of Japan officials were not surprised by the numbers and have already factored in the recession and are expecting growth to rebound in coming quarters as consumption and factory output show signs of a pick-up. In fact, analysts predict that the BOJ to keep monetary policy steady at its rate review this week.