If the RBA delivers a hawkish verdict, AUDUSD will almost certainly rally—possibly above 0.66400. Conversely, should the RBA indicate the preparedness to cut the rates in summer, AUDUSD may trend lower or stabilise in the 0.65200 – 0.66000 range.

Federal Reserve

The most important event of the week will be the Fed’s policy rate decision, which is due on Wednesday at 6:00 p.m. UTC. The U.S. central bank is arguably the most important central bank in the world as it issues the world’s reserve currency, the U.S. dollar. Therefore, its decisions are always highly anticipated by the market, and, in fact, they often overshadow the decisions of other central banks.

This time, however, the Fed’s decision is even more important because it will be accompanied by the publication of the latest FOMC Economic Projections report. This report is critical for the market because it includes the ‘dot plot’, showing how each Fed member projects future interest rates. The Fed only publishes its projections four times a year so that investors will study them carefully.

Last time, 17 of 19 Fed officials projected lower interest rates by end-2024, effectively providing a green light for traders to price in a more aggressive Fed cutting cycle. On the day the Fed telegraphed its previous projections, gold price (XAUUSD) rallied more than 2% and then increased by another 3% throughout ten trading sessions. So the importance of the upcoming Fed’s decision should not be underestimated.

According to Reuters, analysts expect the Fed to maintain its Funds Target Rate in the 5.25 – 5.50% range. However, the market expects roughly 75 bps worth of rate cuts in 2024. Thus, traders are not positioned to see a ‘hawkish surprise’ from the Fed. It is a risky position because surprise may be coming as inflation remains sticky. The latest U.S. Consumer Price Index (CPI) came out higher than expected, while the Producer Price Index (PPI) accelerated to 1.6% in February (from 0.9% in January).

Overall, the Fed is likely to err on the side of caution and strike a delicate balance, indicating that while inflation remains a problem, rate cuts in 2024 are not out of the question. Still, investors will probably have to push back their expectations for an early rate cut, and the probability of a 25-bps rate reduction in June may decrease. In this case, XAUUSD will probably correct to the downside—possibly towards the 2,140 – 2,130 area.

Swiss National Bank

SNB’s decisions rarely move the markets sharply. However, the Swiss franc (CHF) may devalue if the SNB announces a rate cut or gives a dovish message on Thursday at 8:30 am UTC. The probability of a 25-bps rate cut currently stands at 33%, but most market participants expect the first rate cut in June. Indeed, SNB is likely to hold the rates steady at its next meeting as monthly inflation accelerated to 0.6% in February. Projecting what would happen to USDCHF after the SNB decision is tough because the Fed’s decision will overshadow it. The key levels to watch are 0.87000 on the downside and 0.89000 on the upside.

Bank of England

The week will wrap up with the BOE’s verdict, due on Thursday at 12:00 p.m. UTC. GBPUSD has recently managed to escape its three-month-old trading range and set an eight-month high. However, the pair has been on the downside lately as inflation figures from the U.S. disappointed investors, while the U.K. labour market showed signs of weakness. According to the interest rates swaps market data, investors are pricing in roughly 60 bps worth of rate cuts by BOE in 2024, with the first rate cut anticipated in either June or August.

As in the case of SNB, the BOE’s decision will be preceded by the Fed’s decision, so it is difficult to forecast where GBP pairs will move on Thursday. However, traders are advised to monitor any shift in BOE’s Monetary Policy Committee (MPC) rate voting. Previously, two MPC members voted for a rate hike and one for a rate hike. If the number of doves within the MPC increases, GBP will take a hit.

About Octa

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