How to Play Today's Central Bank Meetings
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The Fed and the New Zealand central bank could move currencies with their pronouncements.
It's a big week for central bank meetings, and today brings confabs at the Fed and the Royal Bank of New Zealand. Kathy Lien, managing director at BK Asset Management, has a trading plan.
"Having just announced a third round of Quantitative Easing last month, we do not anticipate any further stimulus from the U.S. central bank," she wrote in a note to clients. "However we will be looking to see whether the Fed acknowledges the recent improvements in U.S. data including this morning's rebound in new home sales."
If the Fed thinks recent gains in housing and other areas are signs of longer term trends, Lien believes that would boost stocks and investors' appetite for risk, and weigh on the dollar and the yen. Conversely, caution from the Fed would probably weigh on risk-sensitive currencies, she says.
New Zealand's central bank could make more news. There is a new guy in town - Graeme Wheeler, the RBNZ's new governor - and his comments will give investors their first peek at his monetary policy approach. He has indicated he wants to target inflation at 2%, Lien says, and any related hawkishness could boost the New Zealand dollar. But if he focuses instead on falling CPI and exporters' calls for steps to curb the kiwi, it could fall.
Stay tuned.
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