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Central banks take centre stage today

Five markets in focus today: USD/TRY, USD/ZAR, Two-year decimalised, AUD/NZD and Forge Group.

USD/TRY

We’ve seen a 5.75% reversal in the Turkish lira in the last couple of days as traders speculate that we will see bold moves in today’s Turkish central bank emergency meeting (today at 09:00 AEDT). The market expects the bank to raise the overnight lending rate by 2.25%, although the range from the analyst’s community is wide.  Anything less from the Turkish central bank and the Turkish lira could sell off.

USD/ZAR

The South African central bank meet tonight and traders will be keen to hear narrative from the central bank on future interest rates. The idea here would be to support the rand which has been smashed from pillar to post. Not only does South Africa run a high current account deficit, but it has had wage disputes in the mining sector amid falling terms of trade. The rand has lost 11% over the past three months and 17.5% over the past twelve months. Thus, many feel the central bank will need to raise rates to support not just the rand, but also mitigate inflation forces from the falling currency.

Two-year decimalised (two-year US treasury)

At 06:00 AEDT we get the FOMC statement and there are a few economists feeling that the Fed will hold off from tapering its bond purchase program due to concern around emerging markets. I personally don’t see this happening and feel the Fed will cut the pace of its QE program by $10 billion, in-line with its December narrative. The US two-year bond will be fairly sensitive to the statement, so moves in this instrument could be key to subsequent moves in the USD.

AUD/NZD

I have been bearish on this pair for a long time now, but feel the pair could trade in a 1.0500 to 1.1000 range over the next six months. At 07:00 AEDT tomorrow the RBNZ meet and while the swaps market has a 40% probability priced in for a 25 basis point hike, only three (ANZ, HSBC and Citigroup) of 17 economists feel a hike is likely. A failure to hike could see the NZD fall, although the risk is the RBNZ release a fairly hawkish statement and the market seizes on this to feel a March hike is subsequently on the cards. My feeling is a March hike is likely.

Forge Group (FGE)

Forge has been the wild ride of the last few months, having dropped from $4.18 to 28.5c in November, only to rally to $1.96 and then drop back to 90c. The stock has been in a trading halt since 24 January and is expected to come out of the halt today. As things stand we still don’t know the exact news on why it’s been in a halt, but it’s unlikely to be positive.

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