Daily Commentary BY THE CURVE TEAM –

Politics and Monetary Policy

22nd of January, 2018

It seems these days that it is either politics or monetary policy that is dominating the headlines. The US government shutdown is underway which has markets watching closely while monetary policy discussions this week could be crucial.

The US Government is officially shutdown after an agreement on a number if issues went begging over the weekend. We have seen this political jostling unfold numerous times in recent years and it has usually been resolved rather quickly.

This time could be a little different as holding out is the only leverage that the Democrats have at the moment so the pressure will be on the Republicans to give a little to keep discussions moving forward.

The political jostling will have to compete with monetary policy deliberations this week with a couple of key meetings scheduled. Both the Bank of Japan and the European Central Bank will meet to discuss policy this week and after recent moves in currency markets their post meeting releases could prove pivotal.

There is plenty of speculation that the BoJ and ECB will soon be looking to follow in the footsteps of the Fed, Bank of Canada and Bank of England, in starting the normalisation process of monetary policy. However with the currencies both firming substantially in recent weeks on the back of the weaker USD, they will want to avoid stoking the fire any further, placing them squarely between a rock and a hard place.

In Australia is will be a very quiet week meaning that market moves will be driven by offshore events. Next week will see that change with the Q4 inflation data but until then we watch in anticipation to see how the above mentioned key events unfold.

David Flanagan

Director - Interest Rate Markets