Reserve Bank of Australia and Bank of Canada Both Expected to Remain Hawkish

The Reserve Bank of Australia and Bank of Canada will be the first central banks to announce their interest rate decisions this week. For the RBA, the announcement will be easy since there is zero chance that they will be changing their interest rate and when they fail to do so, no statement is released.

This will make the RBA announcement a nonevent even though the central bank could still raise rates before the end of the year. The Australian dollar is the only major currency to have strengthened against the dollar today and that was because second quarter GDP increased 0.9 percent, bringing the annualized pace of growth to 4.3 percent, the fastest in 3 years. The Bank of Canada on the other hand has a much more difficult job. Although they too are expected to keep rates unchanged at 4.50 percent, firm GDP growth and continued inflationary pressures could keep the BoC hawkish. The Bank of Canada will have to decide whether that is more important or the risk of slower US growth taking its toll on the Canadian economy. Meanwhile the New Zealand dollar has seriously underperformed today despite the lack of any economic data. Read the carry trade section for more details.

Written by Kathy Lien, Chief Currency Strategist of