Central banks preview: rate decisions may be pivotal for FX markets

The Reserve Bank of Australia (RBA) is first up on Tuesday morning, followed on Wednesday by the Reserve Bank of New Zealand ((RBNZ), and the Reserve Bank of India (RBI) on Thursday.

The RBA is expected to raise its rate by another 25-basis points, which would take it to 3.85%. Last quarter, Australia's CPI rose to a more than three-decade high of 7.8%. Yet the RBA, as it did in December, signalled again last month a possible end to its current tightening cycle.

The RBNZ is anticipated to scale back the pace of its tightening cycle. Economists expect a 25-basis point hike, taking the official cash rate to 5% on Wednesday.

Finally, on Thursday the Reserve Bank of India is set to hike by 25 basis points to 6.75%.

(Video Transcript)

Several central banks decide interest rates this week, and it could be pivotal for some moves in the foreign exchange markets.

Let's take a look, first of all, at what happens on Tuesday. The Reserve Bank of Australia (RBA) early morning following on Wednesday by the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of India (RBI) on Thursday.

RBA

Let's take a look at the Aussie central bank expected to raise rates by another 25-basis points (bp), which would take its main lending rate to 3.85%. Last quarter Australian consumer prices rose to a more than three-decade high of 7.8%. Yet the RBA, as it did in December, signaled again last month the possible end of its current tightening cycle.

Last Wednesday, the Australian Monthly CPI indicator, a new monthly measure of consumer prices, indicated that inflation slowed to an eight-month low of 6.8% in February, from 7.4% in the prior month, bolstering the case for a pause in rate hikes.

Just over half the economists polled by Reuters - 14 of 27 - expect the cash rate to rise, while 13 remaining economists forecast a pause this time around.

AUD/USD

That said, let's look at the chart to see what's happening with the Aussie against the US dollar. This could be an interesting chart to continue to watch, despite the fact we've seen two days in a row of losses. This on the US dollar strength. Any indication of a more hawkish attitude to interest rates could well see us rise this line at 6762 which the recent highs that we've seen.

Any hint or a possible no move any hint of a dovish attitude to rates and possibly no move could then take us down to 6564.

RBNZ

The RBNZ, the Kiwi Central Bank, is expected to scale back the pace of tightening. Economists expect 25-basis points, this time taking the official cash rate to 5%. That's on Wednesday.

Inflation, the country remains close to three-decade high of 7.2%. In its last monetary policy statement, the Kiwi Central Bank Governor Adrian Orr said the bank still expects the OCR peak at 5.5% in 2023.

NZD/USD

Let me just show you a chart for the Kiwi against the US dollar. Again, like the Aussie, we've been sidelining recently or moving in a sideways pattern I should say between 61, 68 and 62, 94, not too far away from the midpoint. The same sort of argument.

If you've got a bullish central bank, you expect to go long on this Kiwi against the US dollar. If they're anything like dovish then you expected the market to fall possibly down to the 200-day moving average of 6158.

RBI

Finally, on Thursday, Reserve Bank of India set to raise interest rates by 25-basis points 6.75.