Asian central banks hog the limelight this week
Central banks are back in the spotlight in the week ahead, with decisions on monetary policy due in Australia and Japan, amid expectations of a looming U.S. interest rate hike by year-end.
Policymakers down under will meet on Tuesday and analysts expect the Reserve Bank of Australia (RBA) to stand pat on its benchmark interest rate. All 23 economists polled by Reuters see the RBA's cash rate unchanged at a record low of 2 percent, as a weaker Australian dollar provides support for the economy.
"Services exports, including tourism and education exports, have picked up and the lower currency is also beginning to discourage services imports. Net services exports have contributed more to gross domestic product (GDP) growth over the past year than resources exports, in a clear sign that the lower [Aussie dollar] is working," Paul Bloxham, chief economist for Australia & New Zealand at HSBC, wrote in a note.
Analysts at Moody's Analytics agree, adding that a further rate cut might no longer be necessary if the local currency remains on a downtrend.
"Financial markets have at least one more 25-basis-point interest rate cut priced in for the next 12 months. We think that as long as downward pressure on the currency remains, alongside continued improvement in the non-mining economy, further interest rate cuts will not occur," Moody's said in a note.
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Meanwhile, the Bank of Japan (BOJ) will likely maintain its expansionary monetary stance at the conclusion of its two-day meeting on Wednesday, despite a mixed bag of data releases in the previous week.
Industrial production unexpectedly declined 0.5 percent on-month in August, data unveiled last Wednesday showed, missing expectations for a rise of 1.0 percent.
Retail sales rose 0.8 percent in August from a year earlier, also below market consensus for a 1.1 percent annual increase. On the other hand, household spending increased 2.9 percent for the same month from a year earlier, beating Reuters' estimates for a 0.4 percent rise.
"I think all of these do not bode well but Japan is coming to a point where it is not able to do much easing in the next 6-12 months because of the lack of supply of bonds. There may be some calls for the BOJ to take action with another quantitative easing or a secondary budget on the fiscal side [but] either of those have a negligible possibility of happening," Jay Nelson, senior editor of Success Stories: Japan, told CNBC last Wednesday.
Data on tap
Australia's trade performance is expected to deteriorate marginally in August, on course for its 17th consecutive monthly balance of payments deficit. The trade deficit, due Tuesday, likely widened to 2.55 billion Australian dollars (about $1.8 billion) in August, according to a Reuters poll, from 2.46 billion in the preceding month.
Japan's machinery orders, scheduled for release on Thursday, are seen rebounding back into positive territory after unexpectedly easing for two straight months in June and July. Core machinery orders likely rose 3.2 percent on-month, a Reuters poll showed, recovering from July's 3.6 percent slump.
Compared with a year earlier, core orders which are seen as a highly volatile but useful indicator of capital spending in the coming 6-9 months, are expected to gain 4.2 percent in August, way above the 2.8 percent increase in July.
Meanwhile, Japan's current account surplus is estimated at 1.22 trillion yen in August, narrowing slightly from July's 1.81 trillion yen which marked the country's largest current account surplus in five years.