Among the major central banks, the RBA has been the most aggressive in terms of hiking rates. And who could blame them? Australia is one of the toughest kids in the block, having dodged that recession a few years back and enjoying a series of rate hikes then.
This time around, it seems that nagging inflationary pressures could push the RBA into another rate hike spree. Based on the latest inflation reports, producer input prices surged by 1.2% and consumer price levels jumped by 1.6% during the first quarter of the year. These were enough to push annual inflation to 3.3%, way above the central bank's 2-3% target range.
Thanks to these stellar inflation figures, traders are starting to price in expectations for an RBA rate hike. This could be enough to push AUD/USD past the 1.1000 handle and make Happy Pip do her happy dance!
Be careful though, because if the RBA disappoints during their statement on Tuesday 5:30 am GMT, the Aussie could take a hit.European Central Bank
During their policy decision last April, the ECB hiked rates by 0.25% in order to keep inflation at bay. That was their first interest rate increase in almost three years and ECB President Jean-Claude Trichet hinted that there could be more to come. After all, the main goal of the ECB's monetary policy is to maintain price stability amidst persistent inflationary pressures.
Of course not everyone was pleased with the ECB's decision to tighten their monetary policy. Their latest rate hike drew flak from former BOE policymaker David Blanchflower who remarked that the ECB's 0.25% rate increase was a pretty big mistake. According to him, the ECB's aggressive move could make it more difficult for the euro zone to survive the ongoing debt crisis.
"Oh right, there's still a debt problem in the euro zone. D'oh!"
For now, it looks like Trichet and his buds are much more concerned about battling inflation than solving the debt crisis. Whether this will bite them in the back someday is another story, but it'll be interesting to see if debt woes will weigh on their upcoming decision on Thursday 12:45 pm GMT.
Although the central bank is expected to take a quick breather from hiking, the accompanying policy statement by Trichet could contain clues about future policy changes. If Trichet's tone suggests that there are more rate hikes on the horizon, the euro bulls could charge again and even push EUR/USD above 1.5000!Bank of England
Unlike the ECB, the BOE kept their interest rate unchanged during their last monetary policy statement. All that fuss over the royal wedding and Kate Middleton's gown must've been extremely distracting for BOE Governor Mervyn King and his men!
Now that the William and Kate are already off on their honeymoon, it's back to business for the BOE. Will they decide to follow the ECB's footsteps and implement a rate hike as well?
Minutes of their latest policy meeting revealed that BOE policymakers are still split on their rate decision. Three out of the nine committee members voted for an interest rate increase, with Andrew Sentance being the most aggressive in calling for a 0.5% hike. This was countered by Adam Posen who even argued for more bond purchases.
It looks like the hawks are still outnumbered by the doves, which means that the BOE is unlikely to hike rates next week. Besides, most of the policymakers believe that the spare capacity in the U.K. would be enough to subdue inflation in the future.
That doesn't mean you won't be able to trade this event though! Make sure you keep your eyes and ears peeled during the accompanying statement around 12:00 pm GMT on Thursday because, if King "pulls a Fed" and confirms that interest rates will remain low for a long while, shorting the pound could be your best bet.
I know you can't wait to play these events but make sure you've mastered our Trading the News lesson in the School of Pipsology first. Mind you, there are some dangers (such as slippage and getting "locked out") that you should be prepared for, so be careful out there!