Central banks

How does the soft CPI tilt the odds for tomorrow's Bank of Canada meeting...and what does it mean for USD/CAD?

The RBNZ refrained from any knee-jerk reaction to trump’s tariffs and cut by the expected 25bp to 3.5%. But further easing seems likely, prompting a sympathy bid for NZD/USD and AUD/USD. Though larger forces are likely to keep any upside capped for now.

We have two powerhouse central bank meetings lined up over the next 24 hours. While neither the BOJ or Fed are expected to change policy, the FOMC release their updated forecasts which will provide the first glimpse of their expectations of Trump's tariffs. Implied volatility for USD/JPY is, quite rightly, elevated.

Upside risks to the Fed’s inflation forecast are likely to hamstring Jerome Powell and the FOMC from delivering any imminent interest rate cuts.

Japan's Q4 GDP is the latest to data to outperform estimates and, through the lens of CESI (Cit Economic Surprise Index), Japan's data is also outperforming its peers. While USD/JPY is considering a break of 151, I'm on guard for a false break before the real move to 150 materialises.

The RBA and RBNZ are expected to cut their cash rates this week, though the 50bp RBNZ cut should see their interest rate drop back beneath the RBA's. This has seen implied volatility for AUD/NZD move higher.

This will be the first formal FOMC meeting of President Donald Trump’s second term - what you need to know!

The BOJ delivered the full 25bp hike as expected, which takes their interest rate to a 17-year high of 0.5%. Data released a few hours before the BOJ’s hike showed that Japan’s core CPI rose to a 16-year high, and the BOJ cited the fact that many firms have said they will continue to raise rate this year. And it is these growing wage pressures which have forced the BOJ to increase their price forecasts for fiscal year 2025 and 2026.