Central Bank Weekly Overview
- As the world’s two largest economies move to resolve their trade dispute, expectations for more easing from the G10 currencies’ central banks have receded. In particular, the timing of the next interest rate cuts from the Reserve Bank of Australia and Reserve Bank of New Zealand has been pushed back by one month each.
- Meanwhile, after the September Bank of Canada meeting, rates markets are now pricing in the first BOC rate cut to come in January 2020 – a significant departure from previous expectations.
- Retail trader positioningsuggests AUDUSD rates and NZDUSD rates may rally while USDCAD rates may fall.
Here are again. Global financial markets are taking another spin around the ‘trade war news cycle’ thanks to the latest call for truce in the US-China trade war. As we’ve previously noted, the cycle goes: (1) Trump administration is tough on China; (2) financial markets sell off on trade war concerns; (3) Trump administration hints at US-China trade deal; (4) financial markets rally on trade deal hopes; (5) No deal materializes.
Now that we’re comfortably in stage (4), traders have seen global equities rally, sovereign bond yields rise, safe haven currencies fall, and precious metals selloff. In a similar vein, fading concerns that the US-China trade war would lead to an acute slowdown in global growth have given market participants good reason (for now) to reduce their expectations for more stimulus from central banks. The “race to the bottom” has been put on hold, for now.
US-China Trade War Truce Reduces Easing Expectations
In turn, as the world’s two largest